Buying property can be one of the best investments you make. An investment property can grow your money exponentially (especially in our current housing market), but that doesn’t mean an investment property is without risk.
If you’re considering investing in property, it’s important to do your research before you buy. Here’s everything you need to know.
1. Investment property mortgages vs. primary residence mortgages
There are a number of benefits a mortgage company can give you when buying a primary residence, such as a better interest rate or less money down. However, when applying for a mortgage for an investment property, you might not be able to secure those same deals.
Understand how your investment property mortgage might differ from your primary residence mortgage before purchasing, so you can determine whether or not the property is actually in your budget.
2. Understand your investment property goals
What do you hope to accomplish by purchasing your investment property? Are you looking to rent the space long-term, or hoping to flip it quickly for a fast payout? Or are your goals somewhere in the middle?
Establish clear goals before you invest. This can help you stay focused and ensure you’re purchasing the right property to meet your needs.
3. Work with an experienced investment property realtor
When evaluating realtors, look for someone who specializes in finding investment properties. They’ll know exactly what to look for, including which properties are most likely to rent easily or resell quickly, so you can be sure you’re buying the right property for your goals.
Relay the goals you’ve already established with your realtor. Get on the same page so they can focus on showing you properties that align with what you’re looking for.
4. Understand tax and insurance implications
Just as mortgages differ for primary residences and investment properties, so do taxes and insurance. These additional expenses can sneak up on you if you’re not careful, so make sure you understand all the tax and insurance implications before you make a purchase.
5. Consider a property manager
If you’re renting out your investment property or using it as a secondary home, it will need to be maintained. If you’re not interested in doing the work yourself (or you’re not physically close enough to do so), consider looking into a property manager.
Evaluate the expenses associated with hiring a property manager before you buy your property. These additional expenses could bring the property out of your budget.
6. Work with a legal team
Not only will a legal team help you ensure you’re covering your bases and completing the appropriate paperwork, but they can also act as a sounding board for your questions as you navigate a sometimes complicated process.
Purchasing an investment property isn’t a decision you should make lightly, but when done with the proper preparation and budgeting, it can bring you significantly closer to achieving your financial goals. In addition to a legal team, a financial advisor can help you create an investment property budget that considers all your expenses while keeping you on track to achieve your other goals.
