Buying an investment property may be a good choice for your financial portfolio. There are items you will want to review before making a purchase.
Compare property values and rents
Check out the area property values and compare them against the property you are considering for purchase. Since it is going to be an investment, you need to check both the values and the area rents. Investigate further if you see large swings or confusing figures. If rents are very low or have too much variation, find out why. Remember, you want the “actual” rents, not only what is “offered” for rent.
Investigate the different types of loans
Check all loans carefully to see how they will “perform in the future.” Many adjustable loans can change the property from a good investment to a bad one when interest rates skyrocket, which is what can lead to increased foreclosures because the property becomes “upside down.” Be realistic – anything can happen.
Consider the property tax
Often investors base their purchase on “current” property tax laws. Then, when they purchase at a higher property value, the taxes increase. Do not get caught in this trap. Find out the state tax laws, possible tax changes and incorporate the “new” projected property tax into your figures.
Check the insurance coverage
Just as the tax bill can go up, so can the insurance. Additionally, you will want to incorporate a “landlord/rental” policy into your estimates that will give you more protection than the standard liability policy. Also, look for a policy that will cover an emergency and/or disaster.
Confirm utility costs
Check with the local water, sewer, and garbage companies to see if the utilities will bill the tenant, or if the owner is fully responsible. Find out what the “expectations” of utilities are in the rental market. Then work with us, your property managers accordingly, on how to handle utilities if they are always in your name and plan for future increases.
Plan maintenance costs
Depending on what property you buy depends on what you have to spend on maintenance. You may have an opportunity to purchase a fixer upper, but you need to obtain “realistic” estimates and look for hidden expenditures. Also, do not fall into the trap that you do not plan for any maintenance because you view the property condition as excellent. Think of your own residence and the items that it takes to maintain the property; always something needs maintenance.
Consult your accountant/financial planner/real estate broker
Tax laws can change and your financial picture with them. Be sure to talk to people who are well versed in investment property. Remember, the tax laws could change later, but if you choose the right property with the right financing, it will weather the changes.
Inspect the property
Always perform a thorough inspection of the property before buying. If you cannot personally do this, use someone reliable to do it for you. Hiring a professional Home Inspector to examine the structural and mechanical systems of the property is also a sound investment. Get the facts before signing a loan.
Use this checklist when considering the purchase of a property and contact us to assist you regarding the rental market before buying. Remember that investing in real estate is a long-term investment and if bought wisely, can increase the value of your financial portfolio.