Thinking about investing in real estate? Once you own a home, you can invest in other building to profit by rentals. Or you can resell the property for a higher value. If that’s your plan, do the following before you sign a sales contract for an investment building:
Know Thy Neighbours
All sensible investors spend a lot of time researching a neighbourhood before purchasing an investment property. After all, location is everything. Likewise, do take time to learn about the neighbours as well.
A problematic neighbour can make it really difficult for you as an investor to attract tenants or new buyers for the building. Even if the overall location is good, a bad neighbour can bring it a bad reputation, driving prospective buyers or tenants. You can avoid this scenario by taking some time to research who else owns the surrounding properties.
Have the Building Inspected Properly
You may find a great building in one of the most desired neighbourhood. Then you move in only to find that the building is infested with vermin or mould. It can get worse—previous tenants could have used the building as a meth lab.
Such situations require extensive and expensive clean-ups on the part of the owner. It’s definitely not something you want to find out about after buying the property. Therefore, hire a local building inspector to examine the property before you actually buy it. Otherwise, your investment could cost you more than you anticipated.
Budget Early for the Down Payment
If you are investing as a non-financier, plan on to spend a lot on the down payment. The down payment for investment properties is significantly bigger than for homes. Say you paid 5 percent in down payment for your home. For your first investment property, you might have to spend as much as 20 percent.
For those who are investing for the first time, or as non-finance professionals, saving for the down payment should be planned in advance. Calculate the costs of purchase carefully. Make sure you have enough capital to afford the down payment before you make a purchase move.
It may be tempting to go all in when it comes to your first investment property. But don’t. If you are still a newbie, experts recommend starting low. Start searching from low to mid-priced properties, as long as the location is great. If you get the neighbourhood right, the property would most likely have great resale or rental value.
You can aim for higher-end properties later, when you are more experienced. Money may also be a contributing factor here. But even if you have the capital, it’s highly advisable to start small and then grow big with lessons from experience.
Plan for Complications Down the Road
Obviously, you would make a profit calculation when you invest in the property. However, don’t expect a smooth ride. No investment is wholly risk free, especially real estate. The property market could act out at the most unexpected moment. Therefore, keep sudden complications in mind. Try to plan for those, at least emotionally, so you won’t experience a devastating loss.
Keep the above tips in mind when you purchase an investment property. The right research, inspection, and caution is essential for making a deal that goes right for you.