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What you need to know about buying an investment property

Blog by Kim Twohey | December 13th, 2017

Is 2018 the year you are going to purchase your first investment property?  I hope so because real estate is a great long-game investment strategy that tends to be somewhat insulated from short-term market volatility.  Before you write an offer on an income generating property, you need to do your due diligence.  Here are a few things to consider when diving into the world of real estate investing. 

Learn to love numbers

Investing in real estate is a numbers game.  You need to determine the annual yield of a property to decide if it is a good investment.  Calculating your annual yield is simple:  add up your revenue and subtract expenses.  Be sure to include maintenance and lending costs as expenses.  Once you have done that, divide the result by your down payment amount and multiply it by 100 so that it is a percentage value.  Once you have calculated the annual yield, you can make a more informed decision about whether or not the property meets your investment criteria and goals.

Be prepared to complete due diligence

Thorough due diligence is a MUST when purchasing an investment property.  Beyond the standard home inspection, you need to do additional research and investigation to ensure the property is a good investment.  You need to take a critical look at the surrounding area to ensure it is the right location for a revenue-generating property.  Take a look at factors like the area’s job market, infrastructure, future plans, as well as comparable rental units and vacancy rates.  Review the property tax increase trends to help calculate future costs and to determine if a larger than usual increase is imminent.

Treat it like a job

It is extremely rare to have a rental property that you can just purchase and forget about.  Income properties take work so you should treat it like a job.  Be prepared to have policies and procedures in place for selecting and working with tenants.  Understand that in emergency situations, your turnaround time needs to be quick.  You may need to learn a few new skills so that you can handle various maintenance tasks on your own instead of always hiring someone.  Take the time to visit the properties on a regular basis so that you can get to know your tenants and keep an eye on the condition of the home.

One of the best pieces of advice I can give to anyone interested in buying an investment property is to work with a Realtor who has done it.  Being a property investor gives a Realtor first-hand knowledge of the challenges and unique insight into what makes a successful rental property.  If you have a goal to invest in real estate this coming year, I would be happy to chat with you about my own personal experiences and help you find the best property to help you achieve your financial goals!