Guide to Buy Investment Property

How to buy investment property intelligently is certainly one of the keys to succeeding with with your real estate investment business. Below is a guide to help you get started in finding the right property that will help you to generate additional income.

Seek Professional Advice

You should start by seeking help from your attorney, accountant, and real estate agent. Having said that it is always good to have a plan in mind before you start looking to buy investment property.

Choose the Right Type of Investment Property

You have many choices......Vacant land, single family homes, apartment buildings, condominiums, retail shops, office buildings,industrial properties, mobile homes etc. Each type of property has its risks and reward. When you are starting out, a single family house or small apartment investment is probably the best choice. They are easy to rent, have shorter vacancies on average than commercial or industrial property.

Choose an Area

You should look for an area that offers employment opportunities. The area should be close to good schools, shopping, and transportation. Ideally, it should be an area close to where you live so that you can keep an eye on your investment.

You should take time to drive around and spend some time in the neighborhood and become familiar with the local real estate market before you buy investment property. Check with the local police department to find out whether the area is safe and if you will need to provide any additional security. Drop by city hall to determine whether there are any plans for the local area that could potentially lower the value of the property.

Research the real estate market in the area to find out the condition of prices. If prices have gone down recently, this could be an indication that rents will also be low. On the other hand, if home prices in the area are high, this could indicate the area is in demand that you may be able to charger higher rents.

Find a Competent Broker

Firstly, you have to consider whether you want to to use a real estate broker to assist you in finding the right investment. There are certainly many advantages to working with a reputable broker who understands investment property. Ideally you should choose a real estate agent who is also a real estate investor. You will be surprised to know that 95% of the brokers do not own any property.

A competent real estate broker will know exactly what you are looking for and will let you know of properties which have just come on the market and which may not have been noticed by others yet. Another reason to use a broker is that he will well versed about the area. This can be important specially if you are not from the local area.

Arrange Finances

Before you start looking to buy investment property, make sure that your finances are in order and you know your limit how much you can borrow.

Ideally, your credit should be good order months before you plan to buy investment property so that there are no last minute problems which could prevent you from obtaining a mortgage for the purchase of your investment property. Be sure to check with all three credit reporting bureaus, not just one, to get a clearpicture of your credit standing. If your credit is in order you will to borrow money at a more favorable interest rate.

Research Property Values and Rents

It is important to do your research and find out about the prices of similar properties sold in the area of your choice so that you do not overpay for your purchase. You need to make sure that the property you buy is below market value so that there is a safety margin just in case of rental vacancies. The equity that you gain when you buy below value will help you make a down payment for your next purchase.

You must also check out on the rents in the area by looking at comparable properties for rent on the internet and local news papers. You should also talk to some rental managers in the area to get an accurate idea of the rents and likely vacancy rates.

Analyze the Numbers

You buy investment property because you are looking for a good return on investment. So you must examine the numbers. When you find a suitable property, gather all of the data that you need, what the property will rent for, what are the outgoing expenses and what will be the vacancy rates. It is important that you get all your figures right. You should make your offers based on actual numbers and not on sloppy or fictitious numbers. There are excellent investment analysis software's that can help you analyze the returns on your investment.

Initially Avoid Fixer Upper Properties

You have to be careful in purchasing a property that could be labeled as a fixer-upper. Although you may be able to buy a run down property below market value, you may find that you have purchased a lemon. In case the property requires major repairs and renovations you will need to investment large sums of both time and money to get the property into shape. In this case, it would be better to pay more for a property that requires less attention.

How to buy investment property that is fixer-upper requires specialized knowledge. You should avoid such properties in the initial stages of your real estate investment. Either you should be handyman or have deep pockets to rescue a project if things go wrong.

Inspection Report

Before you buy investment property it is important that you get an inspection report so that you are correctly able to assess any structural or major maintenance problems. Even if you have inspected the property on your own and it looks good to the eye, you should still have a professional go over the property to ensure any leaky problems,electrical wiring meets code, there is no lead in the paint and that overall, the property is safe.

An inspection can save you from problems that are not apparent to you but which could ultimately cost thousands of dollars to correct. Typically a building inspection can cost you a few hundred dollars depending upon size of the property but it will be money well spent.

Make an Offer

Lastly you must start making offers on properties that meet your criteria. Every offer you make will not get accepted. The offer should contain minimum number of clauses. A clean offer is more acceptable to vendors and can help you negotiate a better price. However you must have the ability to pull out of the deal in case during your due diligence you find the property not being suitable for your investment. You should make your offer contingent on review of documents, on your solicitors/ partners approval or finance condition.

Finally, take your time and not rush to invest in rental property. If you miss out one deal you will find several others in the area. A deal of a life time comes virtually every week. How to buy investment property can be a very simple process if you take the trouble to learn the basic principles of investing. Please also read the 'Beginner Investing Guide' before you start investing in properties.

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