Buying real estate as an investment property can be a smart way to diversify your portfolio. While prices can fluctuate wildly when you invest in a property, the investment should be relatively stable, although that’s not to say every real estate investment is a guaranteed money maker. As with anything, there’s equal parts risk and reward to consider. Before investing in such a property, take time to consider the following.
The Condition of the Property and the Location
Both the condition and location of any property you’re investing in is of utmost importance. While putting money into a fixer-upper may not be a bad idea if the right set of circumstances are there, such as it being in a red hot market or neighborhood on the upswing, it’s not always worth your while. If the neighborhood isn’t particularly attractive, you might be making a bad investment. The same thing goes for the condition of the property. As stated by Forbes, you need to have the property evaluated by professionals. Consider the repairs that need to be made. How costly will they be? Can you handle them yourself, or do you need to hire contractors? Most importantly – how long will the repairs take and will the property need to remain vacant?
When you buy a residential property, you typically only need to make a 3% downpayment – this can be higher depending on certain factors like your current financial status and credit score. But, when you buy an investment property, you’re looking at a stiff 20% downpayment if it’s your first such property. It’s recommended that anyone going in as an investor needs to not only secure the money needed but also figure in costs such as renovations. You’ll also need to clear any remaining debts, including student loans. Consider investment loans but bear in mind the different options (there are several) come with different benefits.
Property Taxes/ Insurance
How much you pay in property tax depends on where the property is located. As explained by Forbes, in an urban area, you’re looking at high taxes, while in rural areas; the property tax is less of an issue. This aside, you also have to consider your options when it comes to insurance and what kind of coverage you need. All this depends on the type of investment property you’re buying. What kind of tenants will you have? What kind of area is it in? What’s the vulnerability of the property to natural disasters? All of these factors can make your investment a whole lot trickier and cut into your profits.