Things To Know About Investment Properties

A guide to investment property strategies and financing

Even in the best of housing markets, investment properties aren't for everyone. Profiting from investment property requires a great deal of time, knowledge, research, and patience, and in the current unstable real estate climate, many investors would rather spend that time and money elsewhere. But if you're in the brave minority, here are some things you should know before assuming ownership of an investment property.

Buyer beware

There are many questions you should ask yourself before purchasing an investment property. The first, can you afford it, isn't simply a matter of money. Investment properties should be a supplement, not a substitute, for a retirement plan.

Unless you intend to "fix and flip" your investment property, real estate requires a long-term financial strategy. Investment properties will need additional capital for repairs, maintenance, and improvements. Investment properties mean rental income, but rental income means tenants, and tenants can make for high-maintenance situations.

Investment property financing

You may also be surprised to discover that getting an investment property loan is usually a lot more difficult than regular home financing. Interest rates are higher, down payments are bigger, and more documentation is required when you apply for investment property financing.

But if you've already gotten this far, don't let those factors deter you. Before selecting an investment property, research rental rates in the area. You may need to provide proof that your expected rental income is realistic. If your credit is in order and you've done your homework, you should be able to get the investment property loan you need.

Investment property buying tips

If you're new to the investment properties market, you should know that most of your money is made or lost at purchase time. Calculate the amount of rent you're likely to make from an investment property and the expected cost of repairs and upgrades. If the selling price is too high for those numbers, make a counteroffer, or find another investment property.

With investment properties, research, research, research is as important as location, location, location. Finding a fixer upper in a prime location will net you more in the long run than a beautiful home in a soon-to-be stagnant location. Search for foreclosures, or establish a relationship with a real estate agent who can keep an eye out for the sort of investment properties you prefer. Keep an eye on market trends, and look for solid investment properties rather than one-in-a-million bargains.

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