Guest Post by: Katie Conroy
You’ve probably heard about how purchasing investment properties can increase supplemental income. You may know people who have generated enough passive income to replace their traditional jobs. It’s true that owning rental properties can prove very lucrative and open doors to other types of investments. But this is only the case if you possess the knowledge necessary, approach your investments strategically, and make sound decisions. How you approach your first investment property purchase is key because it will determine whether you start off on a firm or weak foundation. And you will need solid ground to stand on if you want any hope of long-term success.
Here’s the point: Buying rental properties comes with a variety of risks, and it’s essential to take your first purchase seriously. You will make mistakes on your journey, which will help you grow as an investor. But if you want to avoid significant mishaps that can cripple your chance of success, then you need to thoroughly prepare beforehand. From working with professionals like Zitofsky Capital Management to choosing a property to estimating cash flow, here are six practical tips for how you can get yourself ready for real estate investment:
- Make sure it’s the right move.
There’s no doubt that investing in rental properties is a great way to build wealth. Among other benefits, it can add a stream of income, grow in appreciation, and yield excellent returns. However, it’s not the only way to invest in real estate, and it comes with downsides. For example, purchasing and managing a rental property can be time-consuming, the income can be unpredictable, and it requires capital (such as a 20% down payment on a property).
If you’re good with the drawbacks, then investing in a rental property might be the best path for you to take. If not, look into getting involved with real estate investment trusts (REITs), crowdfunded real estate investments, and other methods of investing.
- Put together a team.
Even if you’re the smartest person in the world, your investment ventures will yield better results if you have a good team on your side. Find a reputable real estate agent who can help guide you through the process of real estate investing. Also, start looking for an insurance agent, appraiser, home inspector, and real estate attorney that can reduce your stress and help you succeed. And if you have the budget for it, hiring a property manager can take awaya lot of the stress that comes with being a landlord.
Moreover, working with Zitofsky Capital Management can make all the difference when it comes to your real estate investment experience. Considering the quality of advisory and management services on offer for your investments, it’s well worth reaching out.
- Clarify your big picture.
Okay, so you’ve determined that real estate investment is right for you, and you’ve started to put together your team. Now, it’s time to decide what you want from your rental property.
What kind of property do you want to buy? A single-family home is common among first-time investors because they tend to fall in a lower price bracket and are easier to manage. However, multi-family properties — which are properties that contain more than one unit, such as a condo or a duplex — often yield more cash flow.
You’ll also want to begin narrowing down your price point, remembering that you will need to put down 20 to 25% at purchase. And of course, the location of your property is a crucial factor, so you’ll want to do your research as you plan where your property will be.
- Prepare financially.
Before you dive into real estate investment, you’ll need to sort out your finances — you don’t want to start on unstable ground. Begin by forming an LLC for your real estate investment business. Among other benefits, an LLC will protect your assets from litigation. Hiring a lawyer or formation service to handle the formation process can save you a lot of time and energy.
If you have any outstanding debts, those will need to be eliminated before you purchase a rental property. You’ll also need to develop a budget and figure out how you will save for a down payment. And be sure to watch the market closely so you can see the trends in interest rates. Furthermore, reading best-selling investment books, such as Passive To Prosperous by Dan Zitofsky, is a great way to get a more comprehensive view of how to prepare your finances.
- Learn how to evaluate properties.
There are a lot of factors to consider when buying an investment property. Being able to evaluate each property will get easier with time, but it can be a little overwhelming at first. Nonetheless, you’ll need to go through every consideration so you can ensure a sound purchase. Here are some questions to ask as you assess a property:
- Is it in an up-and-coming neighborhood?
- What are the property tax rates?
- Is it in a good school district?
- What are the crime rates?
- Are there nearby grocery stores, parks, entertainment facilities, and other amenities?
- What is the average rental rate?
These are just a few of the many elements that make a good investment property. Take your time when evaluating a property to make sure you are making a well-informed decision.
- Estimate cash flow.
All things being perfect, you could figure out your expected cash flow by subtracting your mortgage payment from your rental income. But as any real estate investor will tell you, things are rarely that simple. There are a lot of expenses to consider when determining whether a certain property can yield the cash flow you’re seeking.
Property taxes, repairs, maintenance, utilities, vacancy, management fees, landlord insurance, and property insurance are a few of the sneaky costs you must take into account. Be sure to subtract all expenses from your estimated income to get an accurate picture of the cash flow you can expect.
The Bottom Line
Buying an investment property can turn out to be a great decision, but it can also be a bad decision that leads to financial hardship. If you determine that real estate investment is the right move for you, then make sure you thoroughly research, prepare, and make educated decisions through every step of the process. Then, you’ll lay the foundation necessary for long-term success.
Do you need professional assistance in real estate investing, lending, or finance? Call Dan Zitofsky today! (718) 541-0877