Owning an investment property can be financially rewarding if done right. However, many first-time buyers make big mistakes that turn their money-making venture into a money-pit. If you want to make a solid return on your first investment property, follow these tips below on how to best tackle the real estate market as a first-time buyer.
All too often, beginner investors expect to start making a big return as soon as they buy a property and rent it out. However, that’s rarely the case. It’s a long-term game that can turn south if you don’t choose the right property in the right market at the right time. If you want your first property to turn a profit sooner than later, you need to do some initial analysis on the market to understand whether it’s a growing area with low vacancy rates. The last thing you want to do is purchase a property in an area that is shrinking in demand for rental space. So be sure to do your due diligence, not only on the condition of the property but also on the market it’s in.
Many investors underestimate the costs of owning rental property as they don’t know enough to factor in all the hidden costs of managing. If you think the mortgage, taxes, utilities, and maintenance costs are the only expenses you need to be prepared for, you’re in for a rude awakening. Other costs that you need to have enough money on hand to cover include insurance costs, homeowner association/condominium corporation dues, unexpected capital expenditures, legal and administration fees, marketing expenses, and property management fees. If you’re not familiar with putting together a pro forma or cash flow statement to estimate these costs, talk to a professional who can help you outline all potential operating and capital expenses involved.
You’ll need at least 20 percent to put down on a property that is not owner-occupied. It’s also important to note that the qualification requirements are often more stringent and the interest rates are usually higher on investment properties. If you’re not sure whether you have enough, apply for a pre-approved mortgage to find out how much you can afford.
The whole point of owning an investment property is to make a sizable return. So before you invest, it’s important to understand what your return will be for every dollar that you invest. At worst, you want the rent to break even with the mortgage payment, taxes, and utilities. However, you should be aiming for a return of at least 6% a year. If you don’t know how to calculate these numbers, then it’s important to hire a professional who does.
Your Aunt Moira may be a well-known real estate agent, but she might not know a thing about investment properties. Don’t put your business at risk. Only hire real estate and property management professionals who are highly experienced in buying and managing investment properties. Start off on the right foot by hiring the right people who have the experience and know-how to turn your investment property into a profitable business.
Investing in real estate can go either way – you could profit significantly, or it could end up costing you money. If you plan to invest to win, contact us at Medallion Capital Group. Our team of experienced property managers and real estate agents will help you find the right property and generate a consistent return. Contact us today!