Last Modified: 22/09/15
Buying investment properties is an exciting and rewarding venture for many looking to build a well-rounded financial portfolio. For those who are just starting out investing in real estate, or who have questions, read the Q&A below to learn more.
- Am I ready to buy investment property?
- Why buy first home or investment property?
- How do I buy an investment property?
- Where to buy investment property?
- What mistakes should I avoid making when buying investment properties?
- Can I use my current equity to fund buying investment property?
- How do I secure a good loan for my investment property?
Am I ready to buy investment property?
There are many different ways to invest your money, and one of them is in property. While the idea of owning several other residential buildings and renting them out to tenants may initially appeal to you, it is essential to understand that real estate is simply not for everyone.
It is not a get rich quick scheme and requires careful planning and some time. You will need to decide if you are hiring a landlord or if you will manage the properties yourself. Additionally, you need to ensure that you have all of your legal areas covered and understand all of the possible ramifications that can occur should renters not pay, or if there is damage or injuries in your building. Speaking with your lawyer or financial advisor will give you a good understanding of the potential hazards and will also help you get a better grasp on whether you are ready to invest in real estate or not.
Why buy first home or investment property?
The decision to buy investment properties is definitely a difficult one, especially in today’s uncertain market. Many people may fear investing in properties simply because of the recent drops in real estate, however setting up rental properties is a surprisingly lucrative business.
Purchasing a property in a growing neighborhood or in an area near schools and city centers can easily generate hundreds of extra dollars each month in revenue. While there is an initial set up cost for buying an investment property, once you have a property that people want to rent, and a landlord capable of tending to the tenants, then you can sit back and collect a steady stream of revenue on a regular basis.
How do I buy an investment property?
If you are wondering how to buy your first investment property, then you’re not alone. Many novice buyers are overwhelmed and can often make critical mistakes. This is why it is crucial for you to take your time and understand that buying your first investment property is something that is not done overnight.
First, you need to make sure that you have enough of a down payment for the property, and that you can secure a mortgage at a feasible rate. Next, you should begin scoping out properties. Before choosing any particular property you will need to perform a myriad of checks on them. These checks include checking the age of the house, the type of insulation, having an inspector go around and look for water damage or potential pests, and also ensuring that all of the electrical, heating, and plumbing systems are up to par. Once you’ve got a property that meets all of your requirements, you can then begin bidding on the property and go from there.
Where to buy investment property?
Buying an investment property in Australia, or anywhere in the world for that matter, is a huge step in building long term wealth. After assessing your finances and determining that you can now consider buying the first investment property in your portfolio, you need to now look at where to buy an investment property.
The key features that will ensure a very successful investment property is finding it in a location that is close to public transportation, near good school systems, and is in a decent area that is sought after by residents. While you may pay a bit more to get a property in one of the “hot” locations in town, you will find that there is almost a never ending supply of tenants willing to rent your property.
What mistakes should I avoid making when buying investment properties?
Aside from learning how to buy investment property, it is crucial to learn how “not” to buy investment property. Novice investors can make mistakes that can end up costing them tens of thousands of dollars in legal fees and property losses. Here are three big mistakes that real estate investors commonly make;
1. Not enough research – this is key to ensuring that the property is in a good location, will not have any problems, and has no permit issues that can become an issue later on.
2. Not hiring others when needed – getting an investment property is hard work and requires you to hire others for additional resources. Getting experts in to help set up the property, as well as lawyers to look over contracts and papers is essential to preventing major problems down the road.
3. Poor financing – getting a good and reliable loan is essential because the amount you end up paying in interest on a more exotic loan can mean you actually are paying thousands upon thousands more!
Can I use my current equity to fund buying investment property?
If you have owned your current home for several years, then you likely have a significant amount of equity built up into it that can be tapped as a potential financial resource. Using your current equity can be a way to avoid any out of pocket expenses for the investment property and still allow you to secure a loan at a great interest rate. Contact your mortgage company to see about adding in an additional loan and you may be surprised at the great rates that can be offered!
How do I secure a good loan for my investment property?
Securing a good loan at a great rate is essential, especially for first time investors. Unfortunately, unlike with normal mortgage rates on primary homes, investment properties tend to incur rates that are slightly higher. This is why many first time investors initially start out using their current home equity as a way to help lower the rates on the investment property.
Securing a good loan will take a bit of time and research. You may find that the best rates are with your current mortgage lender, or you may find that you find better rates with a different bank. The key is to do some research, understand the qualifying standards that are set in place, and make sure that you provide ample support to show your current income, your equity, and research to help get a better rate!