Many individuals look at real estate as a potential investment. Real estate can provide a stable and dependable source of income. Whether you are thinking about purchasing a property for rental income or to renovate and flip, it pays to ask yourself a few questions first. Here are 5 questions you should definitely consider before purchasing any investment property.
What Do You Hope To Gain from an Investment Property?
Not everyone approaches investment properties the same way, so be honest about your expectations and establish realistic goals for the home in question. For example, if you want to maximize long-term passive income, it makes more sense to focus on rental properties instead of discounted houses to renovate and flip.
Whatever your intentions and goals, you’ll need to run your real estate investment venture as a business, which necessitates determining your operating structure (i.e., sole proprietorship, partnership, LLC) and registering with your state. The process can seem daunting and may be costly, but using an online formation service like ZenBusiness simplifies and streamlines all the steps. The cost savings alone is reason to go this route, especially when compared to hiring an attorney or other services like LegalZoom, which can be up to 80 percent more expensive.
How Familiar Are You with Local Housing Trends?
It pays to understand the market conditions at play where you plan to invest. A house in a hot rental market or one with rapidly increasing home values can produce higher returns than one in a more depressed area. There are plenty of tools available online to help with your search that offer insight into the hottest metro areas.
How Much Home Can You Afford?
Knowing what you can spend to purchase and maintain a property helps set a realistic budget. Plenty of ways to find both single-family and multi-family properties at discounted rates exist, so don’t let a tight budget keep you from jumping in. Foreclosure avoidance situations and estate sales occurring after the owner’s death present good opportunities for investors. Be aware, however, that an estate sale home going through probate court due to lack of a will involves more complexity. Be sure to have the experience of real estate experts to streamline your search and help you through the process.
According to lenders, you should also plan for the carrying costs of upkeep when your property is not producing income. An investment property might remain vacant for some time between tenants. Are you prepared to pay the mortgage, utilities, and maintenance in that situation? If not, you may want to reconsider your investment strategy. Simply buying a property does not guarantee rental income or an increased home value.
Are You Willing to Enforce Rules and Handle Evictions for an Investment Property?
This is a major factor in whether you are prepared to become a landlord. You aren’t buying an investment property to let someone destroy it or live there for free. You need to be willing to set rules and enforce them. Any policies you implement need to comply with state and federal fair housing laws and any applicable local regulations.
Ask yourself how comfortable you are with initiating eviction proceedings when tenants cannot pay. It is never easy to turn someone out of their home, but many beginning investors cannot maintain a property without the accompanying rental income.
Who Will Manage Your Investment Property?
There is a common idea that investing in real estate is a passive income source, but properties require proper management once you purchase them. That can be anything but passive. Know what you are getting into before you take the plunge. Many times hiring a property manager is a worthwhile investment, especially when you own multiple rentals.
It pays to consider all aspects of real estate investing before deciding if it is the right choice for you. Asking questions about costs, risks, and management issues now can alleviate some of the confusion and frustration many beginning investors experience.
Whatever your unique real estate needs require, The Shannon Holmes Team aims to exceed all expectations. Contact us for an in-depth consultation about marketing your current home, or let us help you find your next Birmingham area dream home or investment property.
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