Buying a home is an exciting time, but buying an investment property is even more exciting because it can lead to big gains down the road. No matter what kind of property you are buying, you want to be sure you will get a good return on investment, and First Fidelis can help you land the property of your dreams with a few tips.
1. Ask Yourself Important Questions
Owning rental properties isn’t for everyone. If you aren’t someone who is good at minor home repairs at the very least, then owning a rental property could be incredibly expensive. Hiring someone to do all the repairs will eat into your profits but being able to handle at least the minor repairs will save you a lot of money in the long run.
You will also need to have the funds to either complete the repairs or hire someone to do them. Keep that in mind when you are considering a rental property.
2. Save Up a Down Payment
Generally, investment properties will require a higher down payment, so you will want to be sure to save up enough. The three percent down payments that most mortgage lenders will require is going to be higher for an investment property. In fact, usually, at least 20 percent is required down on an investment property because mortgage insurance isn’t available for investment properties.
3. Beware of High Interest Rates
When you go to purchase an investment property, your interest rates are bound to be higher than when you apply for a traditional mortgage. Your mortgage payment needs to be low enough to not eat into your monthly profits too much.
4. Properly Calculate Margins
Before you purchase an investment property, you need to calculate your margins. Your goal should be 10 percent returns with an additional one percent being allotted to maintenance needs for the property each year. You’ll also need to consider the cost of insurance, HOA fees, property taxes, and other expenses such as landscaping and pest control.
5. Calculate Your Expenses
Operating costs on a rental property are generally between 35 and 80 percent of the gross operating income. We recommend using the 50 percent rule. For example, if you charge $2,000 each month in rent, expect to pay $1,000 in total expenses.
6. Don’t Purchase a Fixer Upper
It may seem really enticing to purchase a cheap home and renovate it. In theory, this seems like a great idea, but for first-time investment property purchases, it is probably a bad idea unless you know someone who can do the renovations on the cheap. First-time renovators often pay too much for renovations to get the return on investment that they want or deserve. Instead, look for a place that is listed below market value that only needs minor repairs.
7. Find an Inexpensive Property in the Right Location
When it comes to purchasing a rental property, you want a good deal in the right area. Finding a home with a good price is key. We recommend your first rental property costing about $150,000.
Location is everything. You can have an amazing home that is priced really well, but the neighborhood could ruin your chances of finding a renter. Look for a place with low property taxes that is in an area with low crime rates and a decent school district. Proximity to good jobs and places like parks, malls, restaurants, and grocery stores can help you find a renter.
If you are considering an investment property, contact First Fidelis today at 913-205-9978. We can help you obtain a loan for the property without all the hassle that other lenders come with.