The Top Four Tips for Buying Your First Investment Property

Posted on: October 11, 2016

Real estate is a wise choice for anyone who is looking to diversify his or her investment portfolio. Homes will always be in demand to some degree, and only rapid depreciation in your local housing market or total neglect will hurt your investment. With proper research, it’s not hard to avoid areas of decline and find those that are gentrifying. We’ve been in this business for years, and we have helped many people in the Seattle area get their start as real estate investors. As such, we’re excited to share this list of top tips for buying your first investment property.

Be Aware of Extra Costs

Real estate can seem like a one and done investment. People believe that once the payment is complete, you’re financially in the clear. It would be fantastic if that were true, but there are extra costs that need to be accounted for when you’re maintaining a rental or flipping a home.

The most obvious extra cost is your mortgage. Payments are going to be due every month, with interest, and tax payments will also be included in your mortgage. Be aware that if your rental area is gentrifying, you may see taxes rise. Property flippers can run into problems here, as well. This monthly payment obligation will remain, even if you’re sitting on a house that won’t sell after it has been flipped.

Homeowners insurance is the next most overlooked expense, due to huge variances in its nature. It can vary based on such factors as your credit score, the type of property you own, location, and even whether or not the property has a swimming pool.

The last thing to prepare yourself for is repair costs. No matter how well a property is maintained, these will sneak up on you. Unforeseen problems are guaranteed to occur during a home flip, and if you’re leasing your property, you should always assume the tenant will cause some amount of damage.

Choose Locations Wisely

You should try to scope out an area that provides benefits to property owners in the form of low property taxes, low crime rates, and a steady job market. The goal is to avoid struggling or declining areas at all costs.

Remember that location will also affect the type of investment property you are most likely to purchase. If it’s intended to be a rental, will you be buying in a college area or in a neighborhood known for family-friendly amenities? College areas provide great security, but more wear-and-tear on your home and quicker turnover in tenants. Family-friendly rentals are most successful in areas that offer strong job growth and a good school district. It’s a balancing game, because most of these qualities come with higher property taxes. Consider these factors for flip projects, as well. Buy in thriving areas, and buy the type of property that will be most attractive to the local demographic.

Do Not Turn The Property Into Your Home

It’s not uncommon for a first time investor to fall in love with their property. Because it is already being paid for, moving in and keeping the home becomes a real option. This is a bad idea! We cannot stress this enough. Do not turn what could be a profitable investment into something doomed for depreciation. The reason to rent these properties is because while an area gentrifies, your maintenance costs are offset by an increasing rent.

The one time that living in your investment property can pay off is when you invest in a multi-family home and offset the expenses by using it as your home and rental at the same time. This idea doesn’t always have to be geared toward first time homebuyers, either. Upscale condominiums are an excellent investment, especially if you are thinking of buying a building in an area that is experiencing rapid growth, and you’ll be able to live on the premises while collecting rent from other units.

We’ve been in real estate a long time and have seen these tips help property owners many times. Keep this advice in mind, and you’ll be in a much better position when you decide to buy your first investment property.

If you’re looking for investment properties in the Seattle area, contact us. We’ll help you keep on top of new listings and ahead of the competition when the perfect investment comes on the market.

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