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Making the decision to purchase an investment property is a big deal for anyone—whether you intend to renovate and flip the property or keep and rent it out. It’s not a decision that should be taken lightly. Real estate is a large purchase, so it’s important to fully understand the process before jumping in with both feet to avoid unnecessary costs and surprises. When you decide you are ready to purchase an investment property, here are a few steps to help simplify getting started.
Do your Research
Long before you start looking at properties, you need to do your research. Keep an eye on average prices. Watch to see how long the average house stays on the market. What areas seem to have the most listings and which areas are selling the fastest? How often do prices drop on properties in the areas you like? Do research on the school zones designated for the house, as future tenants may have children and will look at this information themselves. Having a general idea of which neighborhoods you want to purchase property in will go a long way in speeding up the process and save you from looking at homes in areas that won’t work for your investment portfolio.
Understand your Budget
Knowing exactly what you can afford will make all the difference in the world when it comes to shopping for a home. While you may intend to rent the property in order to pay the mortgage, you need to consider that you may experience vacant months and will need to make the payment yourself. Keeping this in mind, there’s no point looking at a $300,000 house if you can’t afford anything over $100,000. To figure out what your price range is, there are a few options available. Making an appointment with a mortgage specialist would give you the most accurate range; however, there are plenty of online calculators that can give you a rough estimate. Keep in mind the going rental rates of the area which you discovered during your research period. Your mortgage payment needs to fall in line with these rates or you run the risk of not being able to rent the property.
Do the Legwork
When it comes to shopping for a home, you’ll find many properties will refuse to schedule viewing appointments if the shopper cannot present a prequalification letter from a bank. Unlike a car dealership or a shopping mall, when you’re viewing the item for sale you are traipsing through someone’s home. Requiring a pre-qual letter up front reduces the amount of window shoppers. It also benefits you—the buyer—as it will cut out any surprises in the long run.
To get a prequalification letter, you will have to make an appointment with a mortgage specialist at your bank of choice. They will ask for your financial documents in order to determine how much they can lend you. This will include paperwork such as paycheck stubs, bank statements, W-2 forms, et cetera. Once they have processed all of this information, they will be able to give you a prequalification letter to show realtors and give you an idea of how much you can spend.
If you are merely looking at turnkey properties, these are often uninhabited; however, you’ll find that many of the agencies listing these properties will still require a pre-qualification letter from your bank.
Trust in an Agent
When shopping for a home, the quality of your real estate agent can make or break your ability to find just what you’re looking for. You want an agent that goes the extra mile, being a partner who provides you with important information. Check reviews, ask around, and talk with the agent before making an arrangement with one. This is sound advice, regardless of whether you are using a regular real estate agent or dealing specifically with a real estate investment company specializing in turnkey properties. You want to know who you are working with.
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