Are you ready to take the plunge and invest in a multi-family property or another kind of rental home? It's a big decision, and not one to be taken lightly. Before making this commitment, it's important to make sure your finances are in order, you have the time necessary for upkeep, and that you've done proper due diligence on the property itself. Taking the time to consider every angle will help guide you toward an informed decision.
Your Finances Are Ready
When it comes to investing in property, having the money to purchase and maintain the property is essential. It's important that you are confident your financial means can handle both of these obligations, as this will determine whether or not your investment will be a good one.
Have the Money to Buy the Property
What kind of money do you need to save up to buy the investment property? It's important to have enough cash available for a down payment, closing costs, moving expenses, and other associated fees.
It's recommended that you have at least 20 percent of the purchase price as a down payment. If you can't afford this amount initially, there are loan options that require smaller down payments – but these usually come with higher interest rates and private mortgage insurance (PMI). You'll also need to consider your budget when selecting financing options; make sure they fit within your long-term financial goals.
When calculating how much money you need for an investment property purchase, also factor in all costs associated with owning the home, such as taxes, utilities, and insurance premiums. Once everything is considered, only then will you know if you're truly ready to take on the responsibility of ownership.
Analyze if It’s a Good Investment
Researching the current market and understanding the costs associated with owning an investment property are key factors in ensuring your return on investment is positive. Here are some tips for finding out if your rental might be profitable:
Analyze past sales data in the area to determine what similar properties have sold for recently
Consider rental income potential and long-term appreciation of the property
Check local ordinances and laws that may impact your ability to rent out or resell the property (Here are the laws for Virginia Beach.)
Have an expert evaluate any repairs or improvements needed before investing
Taking these steps can help you make an informed decision when buying an investment property, increasing the odds you get a great return on your investment.
Want an easy way to determine how much cash your rental property will bring in? Check out this blog post and the free rental calculator that comes with it.
Make Sure You Have Money to Maintain the Property
Maintaining an investment property requires ongoing financial commitment, so it's important to ensure you have the funds available. This includes money for repairs and upkeep that may arise over time. While some of these costs can be covered by rental income, there are still times when additional funds will be needed. It's important to plan ahead by having a reserve account set aside specifically for these types of expenses. Make sure you factor in a buffer for potential increases in taxes or insurance premiums as well.
When budgeting, remember to include both regular and unexpected expenses so that you're prepared for whatever comes up. Having a financial cushion gives peace of mind knowing your investment is secure and taken care of, no matter what happens.
Think About What Rent Will Be
Before buying the property, you should do some preliminary research into the rates you’ll set for rent. There are some states that have rules limiting what can be charged, but for the most part, the decision falls to you. It’s important that whatever you charge tenants does its part to help you pay for the upkeep of the property.
You’ll also need to make sure the rent is in the realm of what other landlords charge for similar properties nearby. If you find that you’ll have to set a high rent to cover your costs, it may not be the best time to invest in a property.
You Have the Time for It
Maintaining a rental property is an investment in time as well as money. If you are considering buying an investment property, then it’s important that you know how much time you will need to dedicate to upkeep and maintenance. It's not enough just to buy a property; you have to also keep it in good condition.
The amount of time required can vary depending on the type of property and its condition. If you’ll need to hire a professional contractor, calculate those costs into your start-up budget. If you want to do the repairs yourself, consider both the time and money that will go into it.
Assess your current schedule and commitments before deciding whether investing in a property is right for you. Consider how much time each month or week will be available for maintenance tasks such as mowing the lawn, checking smoke alarms, cleaning gutters, painting walls, etc., as well as any unexpected tasks that may arise along the way.
Looking for a hybrid property management solution to increase your profit and peace of mind? Consider Koti, a new management solution in Hampton Roads.
You've Done Due Diligence on the Property
Once you're confident in your own abilities to purchase and maintain a rental home, it’s time to analyze the property itself. This means doing research into the local area, including researching market trends and understanding taxes that may apply to your purchase.
Make sure you learn about any potential repairs or renovations that could be required, as well as any regulations or zoning laws that may affect how you use the property. When possible, speak with other owners in the area who have similar properties and ask them questions about their experiences.
And just like with buying a home that you plan to live in, don’t forget important steps like having a home inspection. This will help prevent you from investing in a property that winds up having major problems to fix right off the bat.
The Bottom Line
Are you ready to take the plunge? If you've checked your finances, have the time to maintain a rental, and have done all your due diligence on the property, you may be ready to buy an investment property! While there’s always some risk associated with investments, if you have everything in order, you can feel better about the possibility that this could be a wise investment.