Purchasing Your First Investment Property, Part 2
How to purchase your first investment property
In part 1 of this 2-part blog series, we talked about the first 3 important steps to follow which will help you build a solid foundation of knowledge before you purchase your first investment property. In part 2 we will explore the final stages in the process of purchasing your first rental property to ensure a successful real estate investment.
Step # 4: Determining the economic influences in your location of choice
Once you and your realtor at The Mark Faris Team have decided on a location to begin your search, it is important to look at the economic fundamentals of this area. This is a very important step and will help make sure your goals that we talked about in Step # 1 are obtainable.
Here are some specific questions your Mark Faris Team realtor can answer for you:
- Is there an overall increase in demand for housing in this area?
- Are any homes in the area selling for above list price?
- Is there a lot of speculative investment in the area?
- Is the area in transition – bad to good?
- Is this an area that is growing in population?
- Are interest rates low in this area?
If there are more ‘yes’ answers than ‘no’s’ you’re in a good place and can start searching for that specific home.
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Step # 5: Finding the ‘right’ property for you
Now you are ready to start searching out the right property. You’ll need to determine what ‘type’ of property you are looking for. It is important to know what type of property you are looking for because this will make your search more efficient.
- Residential – i.e. detached house
- Townhouse
- Condo
- Multi-Family buildings – i.e. duplex, triplex etc.
As we also mentioned in Part 1 of this series, 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 and more legal considerations. Depending on your overall goals, you need to decide which property type will best help you achieve them in an obtainable way.
Step # 6: Purchasing the right property
At this stage, you will have picked the location that you would like to invest in, as well as the particular property type. With the expert advice from your Mark Faris Team realtor, you can filter your final selections and decide which property is the best choice for you based on all the steps we’ve covered.
The most important thing is to evaluate if the home you have chosen will generate a positive cash flow. Work with your realtor and mortgage broker to determine whether or not the amount of monthly rent less your mortgage payments and operating expenses leave you with a positive cash flow. Calculating the cash flow on a rental property investment you’re considering will help you decide whether the investment is a good one. You may want to avoid investments with a negative cash flow because you’ll have to come up with additional money to cover operating costs and debt payments.
Keep Reading: Our Insights On The Top Rookie Mistakes When Investing In Real Estate >
The Mark Faris Team will assist you with all the necessary steps in order to purchase the ideal investment property that best suits your needs.
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