Purchasing Your First Investment Property, Part 1
Best practices when purchasing an investment property, and what you need to know before you buy a home with an in-law suite or income apartment.
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How to purchase your first investment property
There are a number of benefits to buying a property and renting it out. Whether you’re looking for extra monthly cash flow or want to use equity from the sale down the road, getting started in real estate investing can seem like an overwhelming venture. This two-part blog series contains 6 important steps to follow, which will help you build a solid foundation of knowledge before you begin, so you can move forward and confidently purchase your first rental property.
Step # 1: Set A Goal For Your Rental Property
This first step is an important one, and shouldn’t be overlooked. It’s essential to determine ‘why’ you are buying your first rental property because this goal will help keep you motivated and focused when times get tough. Real estate investing is not easy and requires time management skills, organization, and dedication.
Owning and managing an investment property are two different things, and in order to successfully manage a property, you need to have a clear idea of why you are doing it. It can become easy to lose your focus and shift your attention towards another project. Since you are investing your time and money into this property you want to be precise in why you are doing this and keep your eye on the overall prize.
Here are some reasons why you might choose to invest in your first rental property:
- Looking for extra monthly cash flow
- Saving for a child’s future education
- Looking to pay down a debt
- Looking to make a larger profit over a longer period of time
- With a goal of eventually becoming a real estate investor full-time
It’s not only important to know exactly why you are choosing to invest in a rental property, but you must be specific to how you’re going to obtain that goal.
If you are looking to make a large profit from your rental over a longer period of time, you need to make sure this goal is measurable and specific. Quantify how much money you want to make from the rental property. Making a decision as to whether to rent the property out by the room or to a single family, is one of the several choices you’ll have to make.
“You can bring in more cash flow by the room, but this requires more management,” says Joel Faris.
Be clear about how you will reach your goal. For instance, you can restate your goal as follows: “Our goal is to have $500 in cash flow (money left over after expenses are paid) so that we have extra money to invest for our retirement. We will rent out each room individually in order to bring in a surplus of $500”.
When buying your first rental property, it’s important to follow a process. The more organized you are from the beginning, the easier time you will have in the long run.
Step # 2: Establish Your Financing
Having your financing in order before you start looking for the perfect investment property is very important. People often make the same mistake when purchasing a principal residence; you need to know what you can afford before you start your search. A premature search can lead to disappointment, as people will find a house, fall in love and then find out they can’t get financing for it. It’s just as important to sit down with your mortgage broker or bank to talk about your options for investing before you even start researching properties.
Three major points to discuss with your bank or mortgage broker:
- Determine your down payment.
- Determine whether you should get a fixed or variable rate for your mortgage.
- Determine what you are pre-approved for.
Once you’ve established these points and receive a ‘pre-approval’ you will have established what you can afford. This is essentially a green light to start your search and will help you narrow down options, making sure you’re only considering rental properties within your price range.
Step # 3: Location, Location, Location
Finding the best location for your rental property is something we at The Mark Faris Team can help you with. The Mark Faris Team can get you exclusive access to our listings before they even hit the market. The best opportunities are scooped up immediately. It’s important to know what different locations have to offer when it comes to renting. We can provide you with resources and information such as:
- Where potential rental properties are located
- The price range of these properties
- What area influences are close to these properties (ie. college and universities)
- What amenities are close to these properties
- What the tenant profile is in different locations is (ie. students, families, long term and short term renters)
- The challenges and opportunities found in different locations
- What are the economic influences of different areas
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After going over this list, you should have a better idea of where you want to focus your search and your agent at The Mark Faris Team will be able to locate properties for sale in your area of choice.
You Won’t Want To Miss Our Final Must Know Tips To Purchasing Your First Investment Property. Continue to Part Two…