Although there are numerous examples of people who have earned themselves a fortune with real estate investment, real estate, like every other business, has many risks associated with it. Moreover, regardless of the type of property you are purchasing or whether you plan to rent or resell it afterward, investing in real estate requires a good amount of cash — which makes it critical to take extra measures to ensure profit on your investment or at least save yourself from a huge loss.
I've observed a shortage of property in good areas over the past few months. This lack of property creates an excellent opportunity for investment. However, it doesn’t mean that anybody can earn a fortunate by investing in real estate. You need to know a lot of things before buying your first investment property.
1. Don’t let your emotions play with you.
Most of the time when buying a home, people listen to their heart more than actually thinking about it logically, which is perfectly fine when it is the place where you will be living for many years of your life. But don’t let your emotions affect your decision when buying your first investment property. Think of it as purely a business investment and logically negotiate to get the best possible price.
Remember, the lower the price you get for a property, the better the odds that you will earn a higher profit from it.
2. Do your research.
Depending on the clients you are targeting, you need to do proper research before buying your first investment property. Make sure that the property is situated in a location that will attract the type of clients you hope to sell or rent to, that it will reach to the returns you are expecting and that it will appeal to the market.
Doing the proper researching and using an analytical approach logically based on the financial factors, rather than considering your personal likes and dislikes, will surely help you in purchasing the best property. After all, investment isn't about emotions; it's about economics.
3. Secure a down payment.
Unlike the 3% down payment on the house you are currently living in, you are going to require at least 20% down payment for buying your first investment property. This is because mortgage insurance is not applicable for investment properties. Moreover, investment properties require greater down payments than your regular building and have strict approval requirements. Keep in mind the expenses needed for the renovation before you pay your down payment.
4. Calculate expenses and profits beforehand.
As the expression goes, only the paranoid survive. OK, not always, but there is no harm in being a little paranoid and considering every detail beforehand. Start with calculating the money that you already have and what you can borrow before buying your first investment property. Next, calculate how much it would cost to purchase and renovate the house. Also, keep in mind the operation costs. Finally, estimate the price you are going to list your property for and cut out the expenses to get a rough estimate of the profit you stand to make. Honestly speaking, you may not even hit half of the estimated profit, but this calculation is necessary to keep yourself in the safe zone.
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