Buying an investment property can be a smart economic decision. If you do it correctly, you can get a great return on investment through passive income and tax breaks to grow your overall equity. But bringing in a significant recovery of your investment isn't guaranteed.
Choosing the right property, having the right timing, and getting your finances in order can be tricky. There are a few things to think about.
LOCATION, LOCATION, LOCATION
The location of your investment property is crucial. If you are thinking about buying a house to rent out, you have to put yourself in a renter's shoes and be sure that you find a home that people will want to rent. It may seem backward to consider the location first and the property second, but the "right" property in the wrong part of town won't get you the rentals you hope for. The experienced Realtors® of Poole Realty have their finger on the pulse of the Northern Florida housing market and can help you find a property worth purchasing.
YOUR DOWN PAYMENT
You may not have considered the differences in down payment requirements for a second property versus when you're purchasing your first home. Instead of getting away with only putting down 5% to 10%, you typically need to put down at least 20%. Investment properties don't qualify for mortgage insurance, so you will need to make sure your credit score, income, and debt to income ratio are at optimum levels to be eligible for a lower down payment.
Investment properties are a great way to provide a passive stream of income.
ONE PERCENT RULE
The one percent rule helps investors decide if a property is worth buying. The rule states that you should be able to bring in no less than 1% of the price you paid for the property, including any repairs or renovations each month. You can also consider this rule long-term; maybe you want to invest in an up-and-coming neighborhood that will eventually give you a significant return on your investment. Whatever you decide to do, aim to keep your mortgage payment at or below one percent of your investment so that you're not paying out more than you're gaining.
COSTS: FIXED & VARIABLE
There are always additional expenses associated with owning and maintaining an investment property. The fixed annual costs include property taxes, homeowner's insurance, and general upkeep costs. Variable expenses are harder to anticipate but make sure you leave some wiggle room in your budget for unexpected repairs.
THE POTENTIAL RISKS
As with all things in real estate, there are sometimes unforeseen risks. You may not have the rental interest that you anticipated, or you could end up having expensive initial repairs. Your property taxes could go up, or the local economy could change. Having an experienced Realtor® that knows your region, knows how the market is changing, and can offer you market advice is an invaluable resource.
The Realtors® of Poole Realty are experienced advisors who can help you navigate buying an investment property and make the best purchase possible. Give us a call today, and let us help you make an intelligent investment.