Everything You Need to Know About Choosing the Right Investment Property for You

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Choosing the Right Investment Property for You

The city of Jacksonville’s population has grown a staggering 8% over the last few years. Combine that with housing costs that are 33% lower than the national average. What does all of this mean?

It means that it is a prime location for locating investment property. So how do you go about finding the right property for you to invest in?

Start by researching to know your area. This is one of the key steps in ensuring you find the right investment property.

Follow this guide, and you’ll be investing in no time.

Can You Afford the Down Payment?

Unlike buying a personal residence, you won’t be able to get mortgage insurance for your investment property. So plan on paying a 20% down payment with traditional financing.

If you cannot afford to put down more, then you can score even better financing rates. This will help you out a lot since financing rates tend to be higher for investment properties.

If you can’t make the number work, then it isn’t the property for you. Do not buy a property that will put you upside down financially.

Maintenance

Do you plan on doing all of the maintenance and handy work yourself? If so, you may be able to save a few dollars. Just understand this isn’t like working on your own home.

You will need to follow the municipal code and permitting regulations. It will also be time-consuming.

Some work will be beyond your abilities. So factor this into your budget. Factor in even more if you intend to have someone else do all of the work on the property.

Don’t forget to consider the type of investment property you are looking for. A multi-tenant residence will require more work than an office building with two or three tenants.

Property Taxes

Before you invest in a piece of property, check the property tax situation. Do the current owners have a homestead exemption? If so, you might get a nasty surprise by a large hike in the taxes.

Don’t risk losing your investment because you can’t afford the taxes. If you are unsure of a property’s total cost, use an investment calculator to estimate.

Start Small

If you are new to real estate investing, then you’ll want to start small. If you want to get into housing, start with a single tenant home or duplex.

This will let you learn from experience before you jump into a building that is home to 10 tenants. You can make sure this is a venture you want to do before you’ve overly committed yourself.

Choose Partners Carefully

It can be tempting to partner with someone so that you can invest in a larger property. The problem is that the more people that are involved, the more potential there is for problems.

So make sure you trust anyone you partner with. You should also get everything in writing. To be safe, hire an attorney who has experience with these types of deals.

Know the Area

Don’t try to invest in an area that you are not familiar with. This doesn’t mean only investing in your neighborhood. It means that you need to do as much research as possible before deciding to buy.

You need to look into both the property and the surrounding community. You want to find areas that are in growth mode. If you find an area is at the beginning of growth mode you can still negotiate a lower purchase price.

If the growth has developed too much, current property owners will command more for their property. If you wait too long, the bulk of the growth will have already occurred and you missed the boat.

Say No to Fixer-Uppers

Buying a fixer-upper sounds romantic when looking for your personal residence. But it is the exact opposite of what you should do when buying investment property.

When buying a fixer-upper for yourself, it only makes sense if you plan to do all of the work yourself. But as an investment property, you need to count this time as part of your investment. Now, this type of property becomes an unwise investment.

Calculate the Income

You need to know what kind of income you can expect from an investment. First, so you know if the risk is worth the reward.

The other reason is that you may have to pay income taxes on that gain. If you have a rental income, you will have to pay taxes every year. Then when you sell the property, you’ll have to pay capital gains tax.

Know Your Renter

Don’t buy property that you want. Buy property that your renters will want. Remember, this is an investment, so you need a commodity that someone will want and will be willing to pay for.

This means knowing the location and property features they want. You may find the right office building, but if there are no nearby amenities for workers, then no business will want to move in.

Real Estate Investment Trusts

If the whole investment process seems like too much, you can opt to invest in a trust. This takes the responsibility of finding, buying, and managing property off your plate.

To participate, you need to open a brokerage account. Then invest in REITs that are privately or publicly traded. This method of property investment will offer better and more consistent returns.

Find Your Ideal Investment Property

Buying investment property is a great way to supplement your income. It can also tank you into major debt.

So before you start buying property, make sure you do your research, so you buy the right property. Only buy property that fit your parameters. This will set you up for success.