Thursday, December 27, 2012

How To Buy Your First Investment Property

The time has come. You've been a homeowner for years, you have some money tucked away, and you're ready to purchase your first investment property. Now what? Do you buy a turn-key home and aim for higher rents? Are you planning on flipping it? Have you considered the idea of a vacation home? What happens after the purchase? These are all questions that should be answered before you actually purchase a property.

How to Buy Your First Investment Property

Time is of the essence

So the Mayans were wrong, the world is still intact, the earth's axis seems to be functioning, and the economy is holding relatively steady, the median housing prices will probably continue to rise. This means the sooner you are able to get pre-approved for a loan and begin investment house hunting the better. No reason to spend more money next year for the same piece of property, especially if you end up going with a fixer-upper.

What will you do with the house?

There are several options for the home after your purchase it.

Flipping it. You may decide to purchase a home, fix it up, and flip it - banking on the aforementioned median housing price increases - to make a little money. Unless you are particularly construction/real estate savvy, or have a close member of the family who is an experienced real estate flipper, this might not be the best idea for your first investment property. Real estate flipping is a gamble, and if you don't come out on top...well, it can be a deflating experience.

Rent it. The rental market is still pretty hot right now. Do take into consideration that as more home owners are back on the market, the balance could tip and rents could potentially dip over the next couple of years. Keeping that in mind, a rental can be a way to pay your mortgage, and potentially sock away a little extra cash. Things to note:
  • Finding tenants can be a laborious process
  • You are responsible for most of the maintenance issues
  • Older homes (more affordable) come with more inherent maintenance issues (not so affordable)
  • A good reputable property management company could be your best friend
If you have considered all of these statements, and feel good about them, a career as a landlord might be a good fit for you. Make sure you talk to you CPA about how becoming a real estate investor will affect your overall financial picture.

Did you say vacation home?
One of best win-win options might be to select a favorite destination, one which you know you will return to on a regular basis, and begin looking for a vacation home/investment property. This option can provide the best of both worlds. You will have a more affordable annual vacation and you may even turn it into a profitable experience by renting it when you aren't there.

The answers to these questions can help you to create a solid "Investment Property Business Plan". Once you have a solid plan, you'll be on your way towards further financial stability. Considering moving forward on property investments in 2013? Speak with Sequoia Realty for some advice today.


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