Purchasing an investment property can help you secure your financial security both now and when you retire in the future. Investment properties give you access to a steady cash flow while helping to diversify your portfolio. What are some issues that you need to consider when purchasing your first investment property?
1. What Is The Crime Rate Where You Are Looking to Buy?
You don’t want to buy a property in an area that has a high rate of crime. Although property values tend to be lower in less desirable areas, you risk owning a property susceptible to damage or is hard to rent because of its location. If you do decide to buy an investment property, make sure that there is an alarm system, and emergency services are located nearby in case your property is broken into or there is a fight on the property.
2. Is the Housing Market Stable in the Area?
The housing market is not static across the nation. Certain areas of the country could be experiencing a housing boom while other parts of the country could be suffering through a depressed housing market. The goal is to find a property in an area where the housing values haven’t changed by more than a few percent each year.
3. Who Will You Rent To?
It is important to know the demographic you are going to rent to. If the property is located near a college town, you will most likely rent to younger kids who are looking for a place to stay during school. Potential landlords who don’t want to rent to teenagers could rent to graduate students or younger professionals who are more likely to keep the property clean and in one piece.
4. Will You Have Short-Term or Long-Term Tenants?
It may be beneficial for landlords to have short-term tenants if they are buying properties farther from where they live. This is because there is less of a need to hire a full-time property manager or worry that you will get a call about a broken toilet in the middle of the night. However, long-term tenants are good because they offer a steady rent check each month and tend to take more pride in how the property looks. Older people and parents with kids are two groups that like to rent for the long-term to provide stability for themselves and their families.
5. How Will You Pay for Emergencies?
You should be holding back 10 percent of your monthly rental income to deal with emergencies. If you are unable or unwilling to deal with a busted pipe or a door that come off its hinges, your tenant could leave without paying the rent. It is also a good idea to help prepare for emergency situations, to require home renter’s insurance for all your tenants. This is will help for a lot of accidents having them be covered under the tenants insurance and not yours. Keeping 10 percent of the monthly rent back for repairs makes it easier to deal with large repairs without having to dip into personal savings to take care of them.
When buying an investment property, it is important to buy in a secure area where there are plenty of tenants to choose from. While you may need to pay a little more to buy in an area where people will want to rent, knowing that you will get a rent check each month will help you make a profit over the long-term.