Are you a novice investor? Are you planning to purchase your first property soon? This may seem like a foreign territory right now. Investing in property could potentially make or break you. So you have to get it right the first time or you could potentially suffer from serious financial consequences.
As an investor, you need to learn about a number of different topics. You need to learn about the right properties to purchase and how to sell your house, all information can be found on Isoldmyhouse if you’re rehabbing properties and a wide range of other topics. To help you better understand what you’re getting into, we’ll share our top five best property investing tips with you right now.
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Tip #1: Have Enough Money to Make Your Down Payment before Property Shopping
Some new investors are so getting started for an investment property to purchase. This is the wrong way to approach your new venture in the beginning. You need to acquire enough money to cover the down on your property. But first, you need to determine the price range you can afford so you know how much you’ll need to have available.
For the most part, when you purchase an investment property, you aren’t going to get away with a 3% down payment like you would in your place of residence. On the contrary, at a minimum, you’ll need to come up with a 20% down payment in order to satisfy potential lenders.
Why? Insurers do not provide investment properties with mortgage insurance. So, you’ll need to come up with the 20% initial investment just to potentially qualify for a mortgage.
Tip #2: Avoid Taking out a High-Interest Mortgage at All Costs
Did you know that lenders charge higher interest rates for investment properties than traditional mortgage rates? Well, as an investor you need to do your due diligence. You need to learn everything that you need to know in order to succeed. And knowing that mortgage interest rates are higher for investment properties is incredibly important.
If you’re trying to make profits on your investment property – and you obviously should be – you’ll need to have a low monthly mortgage payment. Otherwise, your mortgage payment could potentially eat up all of your profits. If this happens, you’ll have a tough time earning a living or a decent return on your high-interest rate investment property.
So, make sure your monthly mortgage payments are as low as they can possibly be. This way, your home will be much cheaper over the long run and you’ll keep more money in your pocket at the same time.
Tip #3: Understand Your Operating Expenses
You’ll never achieve profitability if you do not know your operating expenses. So it’s important to learn how to calculate them ahead of time. Once you do, you’ll know your gross and net operating income.
As an example, let’s say you charge $2000 per month for rent. But property expenses cost $700 per month. On a percentage basis, your net operating income is 65% after expenses.
On average, most property owners tend to use the 50% rule. If you charge $2000 a month for rent, you usually end up paying $1000 per month for your total expenses. So keep this rule in mind
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Tip #4: Buy a Low-Cost Home
Remember, when you first begin investing in property, it’s easier and less risky to purchase inexpensive homes. Why? Your overall expenses will be a lot cheaper when you buy a less expensive home. That’s why it’s a safer and less risky investment.
Many experts agree that brand-new investors should start out by buying a home for $150,000 or less. This way you have some skin in the game, but you aren’t risking more than you can handle at the beginning of your investing career.
Tip #5: Choose the Right Location for a Profitable Rental Property
Choosing the right location is also important when purchasing a rental property. Some things to consider looking for when searching for this property include discovering neighborhoods with little to no crime, areas with low property taxes, and a neighborhood with a solid school district. It’s also a good idea to find an excellent neighborhood with plenty of jobs, malls, restaurants, parks, movie theaters, and other attractive amenities.
As you can see, there’s much to consider when purchasing an investment property. You really need to do your homework before making such a big decision. You have to find the right location and a low-cost home and you must have a complete understanding of your operating expenses.
Otherwise, your purchase could end up becoming a financial disaster and we certainly want you to avoid that scenario like the plague. So use the tips and suggestions shared today and you’ll have little difficulty becoming a successful property investor in no time flat.
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Wendy Dessler is a super-connector who helps businesses find their audience online through outreach, partnerships, and networking. She frequently writes about the latest advancements in digital marketing and focuses her efforts on developing customized blogger outreach plans depending on the industry and competition.