Searching for Your First Investment Property

Your first piece of business is to find a suitable investment property. This will not happen overnight. Be ready to spend significant time searching. As you begin your search you will meet other people involved in the business, use these contacts and develop a support network of people who can help you with their expertise and connections. As you start looking at properties make sure you do thorough research. Keep your own goals and ambitions firmly in mind and don’t allow yourself to be led astray by friendly folks with property to sell you. Often buying your own home is an emotional decision. Becoming a landlord means you’ll be in business. Don’t forget it. Before you start your search get your finances in order, know exactly where your credit score is, and be ready to have plenty of extra cash on hand for after the purchase.

Preparation is the key to success in the investment property business. Know what the lenders will want. Banks regard this kind of purchase as relatively high risk because people are more likely to default on an investment loan than on the mortgage for their own home. This means you will need a bigger down payment, pay higher interest rates and will need to show you have some financial muscle and endurance for the long haul. Lenders like to see that you have plenty of cash in reserve to take care of your investment. You may want to consider getting a secured line of credit for significant expenses too.

You really need to do your homework when you start looking at actual properties. You do not want to pay more than the building is really worth. Sometimes, in a very hot market, investors may be willing to do that but you need to go in armed with the facts and knowing clearly where the line in the sand is for you. Most important is to know that your rental income will cover its own costs. This means money to cover repairs, maintenance, advertising, insurance and vacancies. Everyone has their own formulas for making those determinations, but many say that you should plan on having vacancies at a rate of about 5%. Knowing how long you’ll want to keep a property will partly determine whether or not a particular purchase makes sense for you. If you plan on holding onto something for many years, then a place that will need more work to improve it can make sense but if you want to work with it as a short term investment then putting a lot of money into can mean you may not make that money back or worse still, lose it during a market slump. In any case, make sure you have top-notch inspections done of any property you are considering. There are tax implications for ownership of rental property as well and you will need qualified, expert advice there too. The rules are different everywhere, and vary with the term of your investment. Never invest with money that you can’t afford to lose. Becoming a landlord is a great way to build wealth over the long term but it is not a basket into which you want to put all your eggs at one time.