Investment Property
General

How to Buy Your First Investment Property

Investing in property can be a lucrative long-term financial play, but many current homeowners are reluctant to take the first step. It’s true that real estate investment can be complicated, and that even experienced investors can get burned by bad investments, but if you ever want to see the benefits of investing here, you’ll eventually need to take the plunge. 

So what steps do you need to take to buy your first investment property? 

Set Your Goals

Before you start looking at different properties to buy, you need to take a step back and think about your goals. What are you trying to achieve with your investment? Oftentimes, property investors are hoping for some combination of the following: 

  • Short-term profits. Some people look for properties that they can “flip.” In other words, they want to buy a cheap property, fix it up or change it in some way, then sell it relatively quickly for a profit. This strategy is risky, but if you know what you’re doing, it could be a valuable source of income. 
  • Ongoing cash flow. More commonly, property investors try to optimize for cash flow. They purchase a residential or commercial property that can host tenants, then charge them rent in excess of their monthly expenses. This results in monthly profit generation, and a reliable source of income for the foreseeable future. 
  • Long-term gains. Other times, property investors want to maximize their long-term gains. In other words, they choose properties with the highest potential for growth over the course of years and decades. Here, investors typically favor inexpensive properties in neighborhoods that are poised for growth. 

Which of these are most important to you? 

Shop Around for a Loan

You probably don’t have the cash available to buy a house outright, so you’ll need to take out a loan—just like you did with your current home. Shop online for investment home loans to find the best possible rates; you’ll notice that interest rates tend to be higher for loans for investment properties than for your primary residence. However, if you keep looking, you can eventually find a good deal. 

Prepare Your Finances

Next, you’ll want to prepare your finances. How much cash do you have available? How much financial risk can you tolerate? Will you have enough money for a down payment on an investment property while still retaining enough for an emergency fund? What does your credit score look like—can you increase it before you try to take out a loan? 

There are a lot of factors to consider here, so take your time. 

Talk to a Mentor (or a Peer)

If you’re not sure where to begin, or if you’re just not feeling confident in your instincts, consider reaching out to a peer or a mentor who’s already experienced in real estate investing. Chances are, they’ll be happy to share some perspective and advice with you—and they may even have a good deal to show you. If you don’t know anyone who invests in real estate, you can head to a local real estate investing meetup or network with people online. 

Choose the Right Neighborhood

One of the biggest factors for success in real estate investing, no matter what kind of goals you’re optimizing for, is choosing the right neighborhood. If you can nab a good property in a neighborhood with a skyrocketing upward trajectory, you can see an impressive ROI. 

Crunch the Numbers

If you’re buying rental property, there are many metrics you’ll need to consider to gauge whether the property will be profitable or viable long-term. Consider the renovations you need to make, competitive rent prices in the area, repairs and maintenance you’ll need to provide, and unforeseen emergencies in all your calculations. 

Be Patient

If you have all the ingredients in place, you’ll be ready to jump on a good deal the moment one becomes available—but don’t act before you’re ready. Too often, new property investors struggle because they’re overeager; they buy properties without thinking through the consequences, or they purchase a “good” property instead of waiting for a “great” one. Real estate investment is a long-term strategy, so there’s no harm in waiting a few months for the perfect property to come along. As you become more experienced and more confident in your abilities, you may be able to take on riskier or more questionable properties as part of your portfolio. 

As a new real estate investor, you’re going to make mistakes and you’re going to face some challenges. This is all part of the process. But over time, you’ll learn more about the real estate world, you’ll improve your strategy, and ultimately, you’ll stand a better chance of seeing impressive returns on your investments. 

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