As a first-time investor, you already know that investment properties can be a great way to bring in some added income. However, it only works if you know how to find the right property and how to manage it properly. Before you pick something out and shell out your hard-earned cash, take a moment to make sure you’ve covered all your bases.
Get Your Finances in Order
There may be some similarities between buying a residential property and an investment property, but the processes are definitely not the same. Bankrate suggests making sure your credit score is at 740 and above. A strong credit score can get you a great interest rate. It’s also recommended that you plan on making a down payment of 20% or above to keep your mortgage low. Since it’s an investment property, the lower you keep the recurring costs, the more likely you are to turn a profit. When you’re looking for mortgage lenders, you should shop around for the best rates. Conventional mortgages tend to have a higher interest rate for investment properties, but you may get a break if you intend to live there as well.
Choose the Right Property
There are a number of ways real estate investors can boost their income. There are options in existing residential and commercial properties as well as tackling construction. According to Investopedia, though, first-time investors are best served with single-family homes and condominiums. Condominiums are usually low maintenance, but single-family homes tend to attract long-term renters. When you’re looking for your first investment property, make sure to check out the neighborhood. Keep an eye out for schools that are nearby as well as job opportunities. On the financial side, you need to weigh the cost of property taxes against the average rental income in the area.
Get the Best Tenants
After taking the time to find the best property, you now have to make sure the right people live there. According to Bigger Pockets, you need to screen interested tenants as best as you can in order to protect your investment. You can start by making a detailed list of what you do and don’t want in a tenant. A few of the factors you can consider are a high credit score, excellent references and proof they can afford the rent. Your screening process needs to be thorough, so make sure to find out if there have been any evictions in the prospective tenants’ past. If this seems like a lot of work, you can hire a property manager to handle screenings. Some management companies promise bank-level screening, and a manager can provide local support for tenants as well if you live a long distance from your rental. Even with a great tenant, you can’t go wrong with an iron-clad rental agreement. This agreement should be based on your state’s laws and clearly detail your expectations.
Make Safety a Priority
One of the things that can put both your and your tenant’s mind at ease is an effective safety strategy. You can achieve this with a combination of low-cost and high-tech measures. A dependable alarm system can be the best piece of technology you put in your investment property, so make sure to do your research. Bear in mind, though, that it can cost about $675 on average. On the budget-friendly side of things, make sure the home is well-lit on the outside and keep shrubbery pruned. These measures can be exactly what you need to make sure burglars don’t get too close to windows or other points of entry.
It’s great that you want to build your net worth with the use of an investment property. You won’t get the returns you’re looking for, though, if you don’t find the right property and manage it well. Make sure your tenants know what to expect and keep them safe with strengthened security measures.
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