4 Things to Consider Before Buying an Investment Property

Can You Buy the Property Without a Mortgage?

slide2If you can buy an investment property without getting a loan, you will be in better shape than someone who needs to get a mortgage to purchase investment property. Every penny received from your tenant rent payments (after any repairs and maintenance expenses are paid) is profit since you won’t have a monthly mortgage payment.

On the other hand, many successful property investors have purchased property using a mortgage, and are able to profit through their rental fees.  It may take longer for you to earn a profit if you have a mortgage payment, but it’s not impossible.

Daniel says...
Not having a mortgage is of course the best way to go. I've actually seen many cases of this recently in the Los Angeles area.

Most of us, unfortunately, do not have that kind of cash and are left with getting the conventional loan. I actually think it's rare to find properties that can be purchased and would put you instantly in the "black."

When you factor in the mortgage, property tax, insurance, utility costs, repair/maintenance costs and the cash reserve for deposits, it often will leave you in the "red."

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Try to Choose a High Rental Price Area

slide3Some locations allow you to charge higher rental prices than others. You are going to want to seek areas that allow you to charge higher rent, especially if you hold a mortgage on the property you are renting out. If the area you buy an investment property is populated with low-priced rentals, you aren’t going to be able to charge as much since people will simply choose the lower priced rentals in the same area rather than pay more for yours.

Daniel says...
The way I see it, if you buy into a "higher" area it's going to be reflected in the purchase price. And vice-versa for a "lower" area.

What I look for is a potential in rent as opposed to just focusing on an area. Also, you should find out if a prospective property is located in a Rent Control area as that will directly impact how much you can raise rents.

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Repairs and Maintenance

slide1If you are not a handy person, the costs of repairing and maintaining investment property can eat a lot of your profit. It is possible to hire contractors or maintenance workers to help maintain the property if you’re not someone who can handle those repairs on your own -- but it may make it difficult or impossible to earn an income after your expenses are paid.

Daniel says...
This is often the most overlooked part of being a landlord. Repair costs can cripple your earnings if you are not careful. To protect yourself, it starts with due diligence before buying.

Get a trusted inspector but also bring a contractor and walk the property and units yourself. That beautiful 100-year-old property with premium rent could be your next money pit if you don't get it carefully inspected.

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Dealing with Tenants

slide4As a landlord, you will have to deal with tenants. You can put a very intense screening process in place to help ensure you are picking responsible people to live in your investment properties, but you will never know for sure what is going to happen until you’ve chosen people and they move in.

Tenants are not likely to take care of the property the same way a homeowner would, and there is always the chance that a tenant will make payments late or not at all. It’s not always as simple as kicking a non-paying tenant out of the property, either, and there are often expenses involved in evicting someone from your property.

Daniel says...
The best way to protect yourself is with great leases/documents. But also trust your gut. Many of times I've gone with an applicant who looked less attractive on paper but had better "energy."

You don't have to live with a new tenant but your other rent-paying tenants do, so always ask yourself if this is someone you'd be living with as well.

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