Things to Consider When Buying Your First Investment Property
Things to Consider When Buying Your First Investment PropertyBuying an investment property can be a great financial move. However, before you jump into real estate investment, you’ll need to carefully consider what kind of property to buy, how you’ll manage the property, and what return on investment you can expect. Don’t forget that if you have any questions about the Eugene housing market, you can reach out to Aaron Stansbury, a member of the Keller Williams team who has plenty of experience in the area!
Having the Right Mindset
If you’re buying an investment property for the first time, it can be a bit overwhelming. Whether you’re buying a rental condo in the city, a commercial investment property, or even a vacation rental on the beach, you’ll need to ensure you’re making a good investment, and won’t be risking a big loss. When searching for your first investment property, don’t listen to your emotions; instead, develop a business mindset. Unlike purchasing your own home, when you go with a gut feeling to buy a home that will make you feel great, an investment property is a business investment. As such, it’s important to be as logical as possible throughout the decision-making process and use your head, not your heart.
Return on Investment
Investing in property is all about making a good return. When deciding what property will give you a good return on investment, use the 1 percent rule. This rule states that each month your gross income should be at least 1 percent of the price you paid for the investment property, including any renovations or upgrades you made to the space. If the property is far more expensive than that, walk away. This won’t be a good choice for your first investment.
Calculating Expenses
Once you’re sure you’ll get a good return on the property, calculate the expenses of managing and maintaining the property. Consider all the expenses your property will incur, such as property taxes, insurance, maintenance costs, vacancy costs, and property management expenses. A good rule of thumb is the 50 percent rule, which suggests that your expenses will be roughly 50 percent of your gross income on the property.
Managing Investment Property
When deciding to purchase your first investment property, it can be tempting to be very hands-on and become your own property manager. You may want to act as a landlord or oversee the operations of the building. Managing your investment property on your own may save you some costs, but hiring a property management service will be more effective and save you from making any costly rookie mistakes. They will handle marketing, build a website, find the right tenants, handle all concerns, and maximize your returns, among other things, and you won’t have the headache of making all these decisions.
What to Consider When Buying Rental Property
If you’re buying a rental property as your first investment property, there are a few more factors to consider. When deciding if the rental property will give you a good return, consider home prices in the area (Eugene homes have been selling for an average of $360,000) and how much you’ll be able to charge for rent, factoring in the location of the property, the home type, and any updates you make to the building. Think carefully about what renters in the area are looking for in a property, and be sure that this property is appealing to renters; otherwise, you’ll suffer from high vacancy costs, and sink a lot of money into a property no one wants to rent. With a rental property, you’ll definitely want to hire a property management service to manage all your tenants and enjoy peace of mind knowing your property is in good hands.
When buying an investment property for the first time, make sure you’re making a good investment. Carefully consider the potential return on investment and the expenses, and treat this decision like any other business decision. Weigh the risks and rewards, and make sure your first investment property isn’t too risky. Once you find a property that will provide a great return, move forward with the investment and find a qualified property management service to take care of all the ins and outs of your investment property.
Written by Katie Conroy for The Eugene Life Professional CORP