Buying a new home is an arduous process, but there’s a big difference between buying your first home and buying an investment property. Everyone dreams of being a homeowner, but you must approach buying a rental property a little differently than if you were looking for a house for your family.
When it comes to buying a new home as an investment, you have to be mindful of cost, the home’s condition, and the area. You have to think about profitability and not just comfortability. Continue reading to learn what four things you have to look out for when considering buying an investment property.
1. Income Potential
Whether you buy a new home or an older home, the purpose of owning an investment property is to make money. How would it profit you to pay a quarter of a million dollars for a new home if you can’t recoup your investment?
Before you buy a home in any neighborhood, you should research the other properties in the area. The main thing you should be investigating is what other property owners in the area charge their tenants for rent. You want to make sure that you offer a competitive rate to prospective tenants and at the same time charge enough for it to make good business sense.
According to many experts, you should follow the 1% rule. According to the 1% rule, you should set the monthly rent at a rate equal to or greater than 1% of the home’s value. In other words, if you purchase a home for $200,000, you should charge at least $2,000 per month for rent. By following the 1% rule, you should bring in enough revenue to handle maintenance costs and recoup the home’s value in between 8 and 10 years.
2. Home Maintenance
We like to think of homes as having an “everlasting” quality, but homes and appliances deteriorate with time. If you’re buying an older home to rent out, it’s critical to do a thorough home inspection and be on the lookout for red flags like poor insulation, outdated plumbing, water damage, faulty wiring, and cracks in the wall and foundation.
If you choose to put your own appliances in the house‚Äîwasher/dryer, refrigerator, and central air conditioner‚Äîthen it will be up to you to maintain their repair. It’s critical to make sure that the most important facilities in the home are in good condition and fully functioning to avoid spending a lot of time and money on upgrades and improvements.
Also, it would help if you built relationships with different contractors and appliance repair companies to ensure you get the best possible prices and service. Even if your AC unit is running as it should, you should still have technicians add refrigerant every summer. If your new house has a fireplace, you’ll need chimney cleaning services. If you have a large lawn, you may even want to hire landscapers to maintain it for you.
The point is, you don’t want to wait until you need the services of a contractor or technician to start seeing who the best ones are in your area. Don’t let home repairs and other maintenance issues catch you unprepared.
3. Down Payment
When you bought your first home, you may have gotten an FHA loan or took advantage of a program for first-time homebuyers. However, if you’re buying a rental property, you won’t be able to take advantage of those kinds of programs. That means you’re going to have to come up with 20% of the home’s value for a down payment. It would also be best if you began working on your credit well in advance so it will be easier for you to get financing for your venture.
4. Property Taxes
Whenever you buy a home, you have to consider property taxes. Property taxes eat into profits, so you need to factor that into your buying process. Usually, cities have higher property taxes than rural areas. Also, you need to be cognizant that some cities charge higher property taxes for rental properties. To learn more about what things to look for when buying a house, visit tomsnetworking.com.