Wednesday, 23 October 2019 00:08

How to Choose the Right First-Time Investment Property

How to Choose the Right First Time Investment PropertyWe all have dreams of either a side hustle or retirement renting to others. It’s actually a great idea, so long as you understand what you’re getting into. In fact, 91% of cities in the U.S. are seeing rising rents, so there’s no better time than now to get started.

But securing investment property financing can be daunting. It’s actually a great market, but traditional lenders and investment advisors aren’t always well-versed on these types of purchases.

You may not want to be pigeonholed into the one- to four-unit loans traditional mortgage lenders can provide. This is why companies exist to make it easier than ever to explore and understand the wide world of investment properties, whether you’re renting a room in your home or buying an apartment building.

 

Determine What Type of Investment Property You Want

Shopping for a home is hard enough. There are so many types of homes, from houses to townhouses, condos, duplexes, and triplexes. Picking the type of home and location is the first step to any real estate investment.

This gives you a chance to check out the local market and see what’s actually available. Websites like Zillow are notoriously behind in listings, so in addition to the MLS, look through state and other government resources for foreclosure (REO) properties. 

Pricing is also a consideration in property type. The investment property you choose heavily depends on what you can afford. And for most investment properties, like vacation rentals, apartment buildings, etc., your neighborhood lender or financial advisor probably doesn’t have much experience.

One of the best ways to save money on 5 or more properties is a blanket mortgage loan. This bundles your properties into one loan with one lender, making it much easier to get your investment off the ground.

These deals may sound too good to be true, but blanket mortgages really do have better pricing than you’re used to seeing. They’re made more affordable through essentially bulk pricing. It’s commonly used by builders in subdivisions around the country who buy an acreage and divide it into individual subplots to build and mortgage.

Blanket loans help you start higher on the real estate investment ladder than simply purchasing and renting one home at a time.

Decide How Involved You Want to Be in the Property

Once you know what type of property you’re investing in, you need to decide how involved you want to be. Today’s market accommodates all levels of landlords, from Airbnb hosts to multinational conglomerates. With this market comes an entire secondary market of businesses that help landlords.

Owning an investment property isn’t always as easy as it sounds. You’ll need marketing to find tenants, legal to protect your assets, accounting to manage payments, and so much more. Some lenders also offer management services, but full-service institutions aren’t typically masters in any one discipline.

Look into third-party rental management services, custodial services, landscaping, security, and other services. It’s important to factor these types of costs into your overall budget so your dream investment property doesn’t become a money pit.

Shows like ABC’s Shark Tank have a great perspective on what it’s like to be an investor. 

Often times you’ll see Barbara Corcoran (a successful real estate investor) and the other sharks refuse a deal simply because it’s too much work. You’ll be swimming with the sharks in both residential and commercial real estate once you start investing in real estate. 

If you don’t want to get your hands dirty yourself, simply hire professionals to get the job done for you.

Get a Professional Appraisal of the Property Before Investing

Speaking of professionals, never purchase a property without first having it professionally appraised. The last thing you need is to secure investment property financing only to find two months later that the foundation is cracked, the roof is leaking, and the plumbing is broken.

Repairs are always necessary over time, and most property management companies put a bandaid on the problem, leaving it for someone else down the road. You will be that someone if you do not get a professional appraisal before you buy.

The U.S. has the Uniform Standards of Professional Appraisal Practice (USPAP) which sets specific ethical and professional guidelines for professional appraisers. Be sure your appraiser is certified and will do the job correctly. Work with a realtor or loan financing professional if you need help finding an appraiser, but do not skip this step under any circumstances.

Secure Your Investment Property with Insurance

Once you have property financing in place, you’ll need to protect your investment. You start with legally protecting yourself by investing in the property through an LLC. From there, you have to worry about the physical property and the people within it. The easiest way to do this is with an insurance policy.

Landlord and property insurance will protect your building (and you) from direct structural damage, along with other protections from lawsuits, fines, and other issues that come up when you’re dealing with renters. Every city and state have their own laws regarding liability, and insurance protects you whenever you’re found liable for accidents, crimes, and other incidents occurring on your property.

Paying premiums for insurance upfront protects your investment property in the long run.

Securing investment property financing is the easy part. The hard part is deciding which property to invest in. What looks great on paper isn’t always great in person, so be sure to do your due diligence. 

The more proactive work you put in upfront, the more pleased you’ll be with the results. So look into all of your options and know what you’re looking at. If your bank doesn’t have personalized investment property options like blanket loans that cover more than five properties, find a lender that does.

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