Thinking of entering the real estate investing world through buying investment property? Smart thinking! Every real estate investor knows that making money from real estate investing is one of the best ways to build wealth and financial independence. In an ideal world, real estate investing would be as simple as owning a rental property and making money by renting it out. However, the reality is far different than that. The process begins with buying investment property, which is not an easy task, especially for a beginner real estate investor. Luckily for you, you’ve come to the right place to learn everything related to real estate investing! Keep reading this guide to learn the steps of buying investment property.
Buying Investment Property Step 1: Choose The Location
The first step to buying investment property is choosing WHERE to invest. This decision is probably the most important one that a real estate investor has to make. The income property location will ultimately determine the supply and demand of rental properties, median home prices, running costs, how much to charge for rent, appreciation, your real estate investment strategy, and others factors that play a role in real estate investing.
Therefore, before buying investment property, you must have sufficient knowledge of the location that you’re investing in. Real estate investing revolves around locations! What might be a great rental property in one area could be a complete failure in another. In addition, your local real estate market is not necessarily the best place for buying investment property.
In general, what makes a good location for buying investment property is a low supply of and high demand for real estate investment properties, relatively low running costs for owning a rental property, high rental income, and an expected good real estate appreciation.
Wondering how you can find the best location for buying investment property? No worries, Mashvisor’s rental property calculator will be of huge help in this regard! To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Buying Investment Property Step 2: Choose The Property Type
The next step in our guide for buying investment property is to determine which type of real estate property you want to invest your money in. The real estate market is filled with numerous types of investment properties. For example, there are single-family homes, multi-family homes, condos, townhouses, apartments, etc.
With all these types available for property investors to choose from, how do property investors determine which the best type is? One might think that the best income property is one purchased at a cheap price. However, cheap real estate investment properties are not always a bargain and may actually cost you more in the long run. The right answer is simple: the best type of rental property is the one that generates the best profits (return on investment).
Related: What Return on Investment Property Should You Expect in the US Real Estate Market?
Thus, buying investment property by only focusing on the purchase price is a major mistake that a real estate investor must avoid. Generally, profitable real estate investment properties are located in excellent locations, are positive cash flowing, require minimal maintenance, have a high appreciation, and work as both traditional and Airbnb investment properties.
Buying Investment Property Step 3: Choose The Rental Strategy
So, say you’ve found a profitable income property in an excellent location. The next step in our guide to buying investment property is determining the rental strategy. Should you invest in an income property following the traditional rental strategy – which basically involves renting out the income property to long-term tenants – or the Airbnb rental strategy – renting out the income property to short-term tenants? In real estate investing, what really determines which rental strategy is the best is, once again, the location of your rental property.
Some areas are better suited for traditional rentals while others for Airbnb rentals. For example, if you’re buying investment property in an area known for being a tourists’ destination, then investing in Airbnb would be the best choice because tourists look for places to rent for short-term. On the other hand, an area known to be a business hub would be better for buying investment property and following the traditional rental strategy as tenants there will be looking for places to live for the long-term. Determining the rental strategy is important as each strategy will yield a higher return on investment in a different location.
Related: Real Estate Investing: Traditional vs. Airbnb Investments
Click here to make use of Mashvisor’s investment property calculator and have a straightforward answer to what’s the best rental strategy for any location!
Buying Investment Property Step 4: Plan Your Finances
The last step for buying investment property in our guide is to finance the rental property. In this step, it’s crucial for a real estate investor to conduct a financial analysis and understand all financial aspects of real estate investing and buying investment property.
The first thing to be aware of is the numerous financing methods for buying investment property – mortgage loans, private money lenders, hard money lenders, etc. Successful property investors always analyze what each financing method requires and its outputs to decide which one will help them reach their investment and financial goals.
Related: What Are the Best and the Worst Investment Property Financing Options?
Other financial aspects of real estate investing that property investors should be familiar with are: rental property taxes, payment plans, and mortgage calculation. For successfully buying investment property, analyze your current financial standing, your personal financial goals, the type of loan for which you are eligible, and set a budget to ensure you don’t find yourself financially distraught.
Buying Investment Property – Additional Tips
Hire a Real Estate Agent
Real estate agents are professionals who have been in the real estate market for a very long time. As a result, they know the ins and outs of the real estate market and will ensure that you buy the best income property. Not only that, real estate agents will conduct a real estate market analysis to find the best location, determine the best rental strategy, and help property investors get a loan for buying investment property. In short, a real estate agent will go through the process of buying investment property for you, which is great for a beginner real estate investor.
Use Mashvisor
Mashvisor is an online platform which provides property investors with real estate investment data analysis including analysis of pricing, occupancy rates, revenue potential, cash flow, cap rates, and cash on cash return calculations for both traditional and Airbnb investment properties.
Signing up to Mashvisor enables property investors to use a number of real estate investing tools which lead to making smart investment decisions, including Mashvisor’s Heatmap, the Mashmeter, and the Investment Property Calculator. These tools allow property investors to find and analyze thousands of real estate investment properties in any state, city, and neighborhood across the U.S within minutes!
In short, Mashvisor works as a real estate agent and conducts a real estate market analysis for property investors thinking of buying investment property. To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
Buying Investment Property – Conclusion
The process of buying investment property is not simple. A real estate investor must take a number of factors into account before making such a decision including the location, type of the income property, rental strategy, and financing the purchase. To learn more about all aspects of real estate investing, continue reading our blog.
And don’t forget to sign up with Mashvisor to make use of the best real estate tools to start looking for and analyzing the best investment properties across the country! To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.