A common question asked in today’s housing market is whether or not an investment property is a feasible purchase. While a great deal of that answer is dependent on your income, expenses and debt, there are a slew of other factors to consider before investing in another property.
By definition, an investment property is a home purchased with the intention of earning a return on the investment through either rental income or resale. Typically, an investment property is not used as a primary residence, or rarely is it occupied by the owner at all. The 2 most common types of investment property are residential, such as renting out a house or condo and commercial, which is the rental of a space to a business or company. But before we get into too much detail, let’s take a look at some of the tips you should contemplate before you invest.
Approach It Like The Stock Market
When looking for a property to invest in, you should consider the investment similar to the purchase of stocks. First, take a look at the fundamentals of the property. Consider it’s cost, location and how “rentable” it is. For example, the market for condos and small properties are more commonly rented, whereas bigger more family-oriented properties are bought. While you look over the possible investments, think like a long-term investor and aim for a property with decent dividends.
Avoid A Fixer-Upper
Unless you are planning to do a full flip on the home, it is best to avoid a fixer-upper. Investing in a home that will take months or hard work and additional costs to become livable or sellable will end up hurting your return more than helping it. It is suggested that you aim for a low-cost home, with minimal upgrades and repairs needed, in order to make the most bang for your buck in your return.
Pay Off Your Debt First
Often people invest in a rental property with hopes of it becoming another source of income to help with their personal debt. Wrong! Adding the additional costs of a second mortgage and owning another home can add to your debt severely. While it is possible to add to your annual income with an investment property, taking on another mortgage in a market which may not remain stable is a big risk. It is suggested that you tackle any debt such as student loans, medical bills, etc. before dumping your money into another property.
Are You The Landlord Type?
With owning a rental property, comes the responsibility of being a landlord. Often this requires extra work and attention in order to keep your tenant happy. Things such as repairing drywall and unclogging a drain often come with this title. Since you are the primary owner, any tenant issues that arise are your responsibility, meaning you will also be wearing the landlord and superintendent hat. If you’re not willing to get your hands dirty, or don’t have the time to take care of your tenants needs, an investment property might not be right for you.
Compare Your Dollar-For-Dollar Return
Once you’ve crunched your numbers on buying an investment property, it’s time to really compare your profits. Take a look at each dollar you’ll put into the property between the purchase costs, repairs and upkeep, and compare it to your potential profit. How does it stack up? The comparison of every dollar VS every dollar profiting can often be alarming. Make sure you’re getting your return, in addition to a little extra, to be able to cover any possible maintenance that might pop up, before you sign on the dotted line.
While investing in a rental property can be a great way to add extra income, it is not for everybody. If you’re thinking about purchasing an investment property, give me a call today at 705-315-0516. I am always happy to answer all your questions and to help you get on track when it comes to investing in the property that’s right for you.