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Article Courtesy of Katie Conroy
Many people think primarily about passive income when they are considering their first investment property. It’s important to know that while that’s a realistic goal, there are several steps to take before you reach it. Read on as we explore the realities of becoming an investor, what’s involved in buying property, and what professionals can help you start out on the right foot.
Configure Your Finances
Assuming you aren’t paying cash, Motley Fool explains there are several ways to handle financing your venture. There are conventional mortgage loans that can be configured for investment properties, government-backed mortgage options such as a VA loan or FHA loan, peer-to-peer loans, and so on. You should investigate the options, look at your credit history, think about how much money you have saved, and decide what choice will make the most sense for your situation.
Keep in mind you may need to make some changes or repairs to whatever property you choose. Qualifications for an investment property loan are typically more stringent than for properties you intend to live in, and renovation loans can be even harder to get for investment properties. You may need to spend some time building a bigger cash cushion, or you might need to spruce up your credit to qualify for a better loan.
Cover Your Duties
Budgeting for your investment is more than just covering the purchase agreement. For instance, you’ll have to handle ongoing maintenance, tenant applications, utilities, and so forth. You may decide to hire a property manager instead of tackling the landlord duties yourself, or you may need to hire a handyman, housekeeper, and/or landscape company if you’re disinclined toward specific chores. All these factors should be considered.
As you prepare, a financial advisor can help if you get stuck on resolving money-related dilemmas. According to SmartAsset, what you pay a financial advisor will depend on how much assistance you require. If you have the agency develop a financial plan, you can expect to pay $1,500 to $2,500 for the one-time service. If you retain them to help manage a portfolio, it will cost 1 to 2 percent of the assets they manage.
It makes sense to look for a location and property that offer ample promise in certain regards. A safe neighborhood, parking area, low-maintenance features, and a price point that will allow you to cover rent plus turn a profit are all must-haves. Keep in mind the growth potential of the area in case you decide to sell later on, as well as the cost of any repairs or maintenance you’ll be either building into your loan or paying for outright upon purchase.
A knowledgeable, reputable real estate agent like The RandelleGreen Group can be the key to finding a perfect property, especially if you’re searching for downtown Los Angeles lofts and condos. Just like with other real estate purchases, the cost of a real estate agency’s services is typically pulled from the seller’s proceeds.
Inspections and Repairs
Once you settle on a great property, just like with a residential purchase, an inspection is a wise choice. It might turn up surprises, like roof issues or drainage problems, and you can use these as bargaining chips or walk away.
At the same time, there are some things an inspection doesn’t check. For instance, refrigerators aren’t included in inspections, and it can cost a pretty penny to have better units repaired or replaced. While most repairs will run between $135 and $374, the parts and installation could cost upward of $1,000. Similarly, washers and dryers are not typically included in an inspection, and if you’re purchasing an investment property that includes them, you should check to ensure they are functioning properly. A dryer repair averages $170, whereas a washing machine repair will vary widely depending on what parts and labor are involved.
Your first investment property is an involved purchase. However, with proper planning and well-chosen advisors, you’ll be set up for a great start. From there, run it wisely so you can look forward to passive income.
Article Courtesy of Katie Conroy (4/9/2020)