You’ve finally decided to get into the real estate game, but now that you’re faced with the task of purchasing your first investment property, you’re just not sure where to begin.
Investing in real estate can be an effective way to bring in additional cash flow and grow your savings. But accurately assessing your chosen market and finding the right building can be complicated. The following tips will help you research various neighborhoods, decide which type of property is right for your portfolio, and spruce it up for your first tenants without breaking the bank.
When you decided to invest in real estate, you might have assumed that you would purchase a property within your own city’s limits. But in some areas, even prices for investment properties in need of extensive renovations can be prohibitively expensive.
Don’t hesitate to look at properties in other cities where your dollar can stretch further. Just make sure that if you choose to do this, you have the guidance of an investor-friendly real estate agent who is familiar with the area and home prices (Austin homes have sold for an average of $425,000 over the last month). Check out neighborhoods in cities with expanding job markets and a high demand for rentals.
You may be torn between purchasing a single-family property or a multi-family building. According to Rentler, single-family homes can be easier to manage because you will be working with fewer tenants, but with more tenants paying rent in a multi-family property, you’ll be able to make more money off your investment. Before making your decision, consider how much time you will have to attend to your tenants’ concerns.
To buy the ideal property, you could work with an agent, or you could go down a different route and purchase a turnkey property from a real estate company. According to Fortune Builders, turnkey properties are typically move-in ready when they hit the market, so you won’t have to spend as much on maintenance or repairs, and the company will handle many important management responsibilities. However, first-time investors should be aware that this path to investment property ownership can be quite expensive.
After putting a portion of your savings toward your down payment, you may not have much to spend on repairs and cosmetic work for your property, so you may want to explore cheaper options for renovations.
For instance, carpeting is an affordable flooring option, and you can lower the cost of carpeting by utilizing carpet tiles (DIY installation averages $575), personally removing your existing flooring, and purchasing your materials from big-box home improvement stores. Other budget-friendly renovation projects include swapping out older fixtures like faucets in your kitchen and bathroom, updating lighting, and adding more shelves and cubbies to create extra storage space. You can save big on all your renovations by using your own tools and materials whenever possible, waiting for deals at hardware stores, and enlisting your family and friends for help.
You need to draw up a lease that will protect the financial interests of you and your tenants. Nolo recommends being very clear in regards to your repair and maintenance policies and your terms for your tenant’s security deposit. Have a third party look over your lease before you begin advertising to prospective tenants. This will help ensure that you did not forget to include any important details.
When it comes to choosing tenants, careful screening is key. You want to find a tenant with steady monthly income, a rental history clear of evictions, and plans to stay in the area for the next few years. Make sure to ask for proof of income and previous landlord references!
As you research potential investment properties in your area, it can be tempting to jump on the first good deal you see. Although you may be eager to purchase your new asset, intensively researching every aspect of your preferred real estate market will help you invest your money wisely, increase your income, and even purchase additional investment properties in the future.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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