Making the decision to purchase an investment property can come with many benefits, but it can also come with many challenges. Especially if you’re attempting this endeavor for the first time, you can expect to come upon some unforeseen predicaments that may have you questioning whether purchasing an investment property was the right choice for you. However, with the proper planning and the right mindset, almost anyone can find success through the right real estate investment. To show you how, here are four simple steps that you should take as an investor to ensure that you find the best property both for your portfolio and for your lifestyle as a property owner and manager.
Understanding Your Budget
The first step in beginning your life with an investment property is to understand your budget. Purchasing an investment property takes a lot of money and a lot of planning; it’s not something that most people can choose to do on a whim. For this reason, it’s worth it for you to have a complete and full understanding of what you can afford to buy, and what you need to have coming back in, from this property in order to make this investment worth it to you.
Another aspect of understanding your budget is being prepared for those unexpected expenses that are bound to pop up on you as a property owner. According to Holly Johnson, a contributor to TheSimpleDollar.com, many beginning landlords and property owners also have to pay for any maintenance or repairs out of pocket in order to ensure that tenants are living in a safe and secure environment. This can be a real strain on your wallet, so factoring these unexpected expenses into your budget at the beginning of this process may help to ease this financial burden.
If you’re unsure about how to work with your budget in order to achieve your investment goals, consider talking to someone who’s been around the property investment block or a financial institution to see what can be done to make your dreams of owning an investment property a reality.
Finding the Right Property Type
Once you’ve decided that investing in a property is right for you, and you’ve crunched the numbers, it’s time to find the right type of property in which for you to invest. With the number of properties available for purchase and leasing, it can be stressful for first-time investors to weed through all of the potential in order to find the perfect type of property for your portfolio and lifestyle.
Scott Trench, a contributor to BiggerPockets.com, suggests to those just starting out in real estate investing to consider purchasing a small, multi-family property as your first investment. By purchasing this type of property rather than something like a single-family home or a large apartment building, you can both live in and rent out available units without biting off more than you can chew for your first time. Getting your feet wet in a low-risk investment such as this could be a great barometer by which to inform you if property investment and management is really something that you want to devote a portion of your life to in the long-run.
Finding the Right Property Location
After deciding the type of property that you’re interested in purchasing as an investment, whether you decide to go with a multi-family property or not, your next task will be finding the exact right property to purchase in the exact right location. This final property decision will have a huge impact on your success as a property investor, so finding the right location isn’t something that should be taken lightly.
To get this decision right, it’s best to do a lot of homework about the areas in which you’re considering buying a property and to understand those specific markets well. This can be done by researching the area and markets or by hitting the pavement yourself and getting a real-life feel for the location and people who frequent those streets.
As a good rule of thumb, Arthur Garcia, a contributor to MoneyUnder30.com, recommends for first-time investors to look for properties in “B Class” communities or neighborhoods. Garcia states that B Class neighborhoods are generally more blue-collar, yet they have more permanent residents than renters – ideally, about a 35/65 percent ratio. A “B Class” neighborhood is generally ideal for property locations for beginner investors because the areas are relatively safe, open to renters, and have a large pool of properties from which to choose.
Fitting Your Management Style to Your Personality
Now that you’ve found and purchased your ideal investment property, it’s time to evaluate how you plan to function as a property manager. In most property management situations, you’re going to be on-call for your tenants 24/7. According to Time Money, this may not be the ideal scenario for you as an investor if you either don’t like fixing things or work upwards of 60-hours per week already.
While there are those who revel in the idea of being the handyman and fixing problems for their tenants, it’s good to know how you feel about this part of property ownership before you jump into it. Many look at their rental simply as an investment property and don’t necessarily like the idea of having to run out to their property for every maintenance issue or question. This distinction is a big deciding factor in how you plan to manage your investment property from a logistical level.
If you’re the type of real estate investor who doesn’t want to be as involved in the day-to-day dealing with your tenants and their issues, you may want to consider using a property management service like us at Green Residential. We can take care of property management tasks like contracts, tenant screenings, inspections, and more to leave you the time you need to live your life. Contact us today if the idea of investing in a rental property sounds like something that could be of benefit to your investment portfolio, but you don’t want the hassle of being an all-in landlord. We can help you find the best solution for you and your specific needs, making this investment the best decision of your life.