Monday, August 2, 2021 / by Jeannette Johnson
[Image Source: Unsplash]
If you're a first-time real estate investor, you need to understand that buying your first investment property doesn't take place overnight. While the actual act of purchasing a place can take a few hours, the Sadle Home Selling Team reminds there are a few essential steps to consider before proceeding with the endeavor.
What to Do When Investing in a Property for the First Time
Learning about investing - especially in real estate - is a must before you commit to purchasing your first investment property. Take a good look at your financial possibilities and ensure you are ready before taking the first step towards making your money work for you. Here is an overview to help you take the necessary steps towards achieving your investing dream.
Decide What Property Type You Want
Before you even start looking for a place to invest in, you need to know what type of building you want to own. Each property type - commercial, residential, industrial, etc. — comes with particular challenges and wins. For instance, commercial properties are more expensive and may ask for higher down payments; however, tenant revenue is usually lower, it has less effect of use, and the property value is often more stable. On the other hand, residential properties are generally cheaper and generate higher returns. In exchange, tenant turnover is higher, there's a significant damage state, and unexpected vacancies can deplete your returns if you aren't careful.
Get Loan Pre-Approval
Your investment mortgage pre-approval will offer you a head start by having your home loan approved in advance and will ensure you shop within your budget. With a pre-approval, your lender will analyze your income, expenses, assets, and liabilities to figure out how much you can afford to borrow and will also assess the documentation needed to get full mortgage approval.
Research the Area and Find the Suitable Property
Now that you've started working with a lender and got pre-approved, you need to decide where you want to own a property and research the area to see how much you can afford to spend and how prompt you need to be. To figure out where to look for investment properties, you need to pay attention to areas with the types of tenants you want. For instance, the Portland market is fairly hot right now, with many homes getting several offers, some with waived contingencies. Portland's average homes now sell for five percent above the listed price and go pending in approximately six days, while hot homes sell for around eleven percent more and go pending in less than four days.
Buy Your Investment Property
Work with your agent from the Sadle Home Selling Team to zero in on the perfect property, and work with them to draw up an ideal offer. Once your offer is accepted, ensure you inspect the building to confirm it’s in solid condition and meets the sale and financial requirements stated in the contract, and then finalize your loan approval to get your settlement.
Calculate Cash Flow the Right Way?
You can get a great deal on investment properties, but if the costs of ownership are more than the rent it brings in, you will end up with a hole in your bank account - that's why it is imperative to understand the concept of cash flow. Determine whether the property has the realistic potential to generate positive cash flow from day one, and ensure you know how to manage it to increase its value and attract tenants.
To start out on the right foot, list the property to let people know you're renting, finalize tenant placement, draft an agreement that includes your responsibilities, the tenant's responsibilities, rules and policies, amount, method, and payment time. As a landlord, you need to keep your property habitable at all times, so hire a property manager if you think you cannot handle the hassle. For the sake of protecting yourself, it’s wise to also formalize your investment efforts as a business with the state. You can easily manage this through an online service like ZenBusiness, which removes much of the hassle in creating a business structure.
First-Time Property Investing
Investing in real estate generates a good amount of money, and it is considered one of the best ways to secure financial independence. While the housing market keeps changing, real estate investing will always be profitable if you know what you are doing.
If you're looking for properties in the Portland-Vancouver area, the Sadle Home Selling Team of real estate professionals is more than eager to help you find the perfect house. Contact us today to book an appointment with an expert.