Buying an investment property is a critical stage in real estate investing. Therefore, whether you are buying your first or next property, here are some tips that work.
Before we get to the point, it is important that you understand our intentions for this article. This article targets beginner real estate investors who are looking into buying an investment property. Thus, this guide is meant to simplify the process by providing real estate investment tips that actually help.
Now that we have gotten that out of the way, the question is how do you buy an investment property that eventually promises the highest returns? So, here are some pointers on how to do that:
Tip #1: Set up your finances
The first tip we could give you is to put your ducks in a row. Therefore, when buying an investment property, it is important that you line up your finances. Your financial plan should include two aspects:
First, what is your strategy for financing the property itself? One way to help you decide is to consult with other investors in the arena. You must know that the best real estate investments start with the proper financing.
Second, what is your strategy for financing other expenses? For example, you might want to hire a real estate agent. Well, that costs money too. So, before you get into any further action, try to set a budget and make a list of what directions your money is going towards.
Tip #2: Look at several properties
One secret of the most successful real estate investors is that they check out A LOT of options before buying an investment property. The biggest mistake you can make as a beginner is to buy the first one in your sight. Why is it important? Because 1) you get to buy a lucrative investment property, and 2) you learn all about the process of buying an investment property.
Tip #3: Work with a good agent
We know there are hundreds of thousands of real estate agents all around the United States. However, only a small percentage of them actually know the ins and outs of real estate. Therefore, when choosing an agent, check the following:
- A local agent. Because they know the area.
- Investor-friendly agents are the best.
- Experience. They have more successful deals than non-successful ones.
- Preferably owns his/her own investment property.
Tip #4: Do your homework
Obviously, math is not something you want to take lightly in business. For that matter, we have so many blogs explaining all the math involved. You will get to learn all about analyzing the property’s fair market value through the following analysis procedures:
- Investment property analysis for the maximum return on investment (which obviously means the most profitable investment properties in the business).
- The real estate market analysis for the most profitable location.
- The comparative market analysis for real estate comps.
- The best real estate investment tools for the most accurate analysis of fair market value. You can always make sure to pick the best investment property/ies with the help of proper tools.
Tip #5: The 1 – 2% rule
In most rental properties, this rule is like the holy grail. Many real estate investors decide how much to charge for rent based on it. Basically, this rule suggests that if you are buying an investment property for $200,000, then your rental income should be somewhere between 1-2% of that value a month.
Tip #6: Hunt for positive cash flow properties
Making money in real estate all comes down to the amount of cash flow a property generates. The more positive cash flow figures you get, the more money you are making. The last thing you want is a negative cash flow rental property that will drain your pockets.
Remember the investment property analysis in tip #4? That is a great way to spot positive cash flowing rental properties.
Tip #7: There is no place for emotions!
There is no way to treat a business other than as a business. Therefore, get rid of emotions and let logic take over. Do not fall into the trap of over-estimating or under-estimating your choices of renting out the property. Many beginner real estate investors think that just because the rental property looks nice, it will not experience any vacancies. Well, think again! The only way to get a proper estimation is to do your homework in tip #4. So, make sure you do not overlook that part.
Tip #8: Buy low
Another great tip for buying an investment property that is lucrative is to buy low. In other words, look for cheap properties (below market value properties). How do you find them? Simply, check foreclosures, short-sales, and off-market properties. Believe us, it will be of great contribution to lowering your budget.
Tip #9: Never pay a contractor in advance
This tip is for any real estate investor who is working with rehabilitating properties. As working with a contractor is part of the deal, never pay them in advance. The only time you should be paying is either for a down payment or at the end of their work. This way you can ensure that they have done their job 100%.
Tip #10: Go with a professional inspection
Tip #11: Ask for advice
You probably know a few know-it-all people in your life who pretend to know everything. Well, I guess what we are trying to say here is not to be one of these people. If you are new to the business, it is OK to talk to other successful investors. After all, they are successful for a reason!
Tip #12: Save up on the search
The number one concern for beginner investors is money. Many do not have the financial means to properly look for investment properties. So, in this case, a good idea would be driving around and looking for “for sale” signs, empty lots and houses. This method is also effective if you do not have the money to pay an agent when buying an investment property.
Tip #13: Motivate the unmotivated
Throughout the process of looking for investment properties, you have come across some unmotivated sellers. You wonder who are they? Well, they are basically people who want to sell but not really. Thus, to better understand the subject, we suggest the following blog: “How to Motivate Unmotivated Sellers When Buying an Investment Property.”
Tip #14: Do a title search before buying an investment property
You have got to give special attention to this one. Hiring a title company to perform a title search is vital. A title company will make sure you are buying an investment property with no liens against it. That is, of course, unless you are willing to pay the lien.
Tip #15: Listen, listen, listen!
When you reach the stage of negotiation, the first thing you want to do is to listen. Make sure you never say or agree to anything before you have all the information. Therefore, just sit back and ask the seller to tell you more. Only after he/she is done talking, you can speak your mind.
Finally, if you are an experienced real estate investor, make sure you comment below. Let us know if there are any tips that worked for you. Also, feel free to share any tips that you feel are important to buying an investment property.