Do you stay in other people’s investment properties when you vacation? Maybe your last stay in an Air BNB made you start thinking about buying an investment property of your own? How do you buy an investment property? Many people ask me how they can go about buying real estate investments, so I thought it would be a good time to go over a refresher on how to acquire your first investment property.
When purchasing a home, one of the first factors to consider is location. Owning a home that is close to you will make it easier to manage, as you can easily check on it and address any issues that arise. However, this can also be time-consuming and not always enjoyable. Alternatively, you may want to purchase a home in a vacation destination as an investment. However, if you are not planning to live in the home full-time, you will need to consider who will handle any problems that arise when you are not there. Ultimately, the decision of whether to purchase a home near or far from where you live depends on your individual needs and preferences.
Second, how will you afford a down payment for the investment property? As an investor you will need more money down, in the range of 25%. You will also need cash on hand to be able to float the property even if there are no renters using it. A good rule is to have 3-6 months of expenses on hand for the lean times. Make sure you understand what the operating expenses will be on your investment and how much you can charge for rent on the home. There are some handy online tools that can help you analyze the numbers and see if they make sense.
Third, determine who is going to manage the property. If you are going to manage it yourself how will you accomplish that? If you are going to hire a manager, find out how much that will cost and what benefits that will provide you. Managers can take over ¼ of your profits so professional property management makes sense.
Lastly, determine who is going to handle the day to day management of the property you acquire. There will be bills, taxes, insurance, turnover, the need to place renters, marketing & advertising, repairs, renovations, and all sorts of time consuming things so know who and how you are going to take care of the everyday task.
The most important thing to remember is that you want to make money and not give yourself a giant headache or go broke.