Understand how to buy investment property in 7 + 1 steps!
Becoming a real estate investor starts with buying an investment property. However, taking this step can be both thrilling and daunting, as with any new endeavor. But with time and experience, you’ll find that the process is very similar to buying a residential property. Although there is no complete guide on how to buy investment property, there are some common steps that property investors need to follow.
How to Buy Investment Property – Understand the Real Estate Market
After you make the decision to start real estate investing, the worst mistake you can possibly make is rushing into buying the first investment property that comes your way. Take a step back and do your research! You don’t need to be an expert in real estate, but sufficient knowledge will take you a long way especially if you want to know how to buy investment property for long-term goals.
Start with understanding your local real estate market – which city or neighborhood offers the best investment properties? Is there a high demand for rental properties? Is there growing population and employment rates? Which type of investment property has more potential for a good return on investment? These are among the most important things to consider when it comes to how to buy investment property because these determine how profitable your investment is. Of course, no real estate investor wants his/her first rental property to be in a bad location.
One of the best ways to understand your real estate market is by performing a real estate market analysis. To learn more about this, read: Real Estate Investing 101: A Beginner’s Guide to Real Estate Market Analysis.
How to Buy Investment Property – Get Pre-Approved for a Mortgage
One of the many things beginner property investors need to educate themselves on when learning how to buy investment property is financing. In the real estate investing business, there are plenty of investment property financing methods. However, the most common one is taking a mortgage. Assuming that this is your method of choice, you need to get pre-approved for a mortgage as soon as you start looking for a potential rental property.
How to buy investment property with a mortgage? Go to the bank and discuss how much you can afford to pay for. This mainly depends on your startup capital (if any) and the expected rental income from the investment property that you want to buy. In addition, there are different types of mortgage loans, so find out which one works best for you. Moreover, interest rates that come with mortgages are different for investment properties. So, make sure you research interest rates on investment properties in your real estate market.
Related: Rental Property Mortgage: The Ultimate Guide to Getting Approved
How to Buy Investment Property – Calculate Finances and Down Payment
After deciding which type of mortgage loan you can afford, don’t throw yourself in real estate investing without doing the proper math! Property investors have to do some calculations. First, expect to put 20% of the investment property’s purchase price as down payment. How to buy investment property also includes calculating the different expenses for operating a rental property. These include mortgage payments, property taxes, and costs of repairs and maintenance.
Moreover, as you calculate for down payment and purchase price of the rental property, don’t forget to include closing costs. Miscalculations could lead to buying an investment property thinking it’ll generate positive cash flow and yield a good return on investment when in reality it will end up eating up your profits. Therefore, don’t underestimate these expenses of how to buy investment property!
How to Buy Investment Property – Find an Investment Property
Now comes the exciting part – shopping for an investment property. Don’t stick to the traditional ways such as looking for “For Sale” signs or print media in your local real estate market. There are many ways for a savvy real estate investor to find an investment property using today’s technology to make the process easier and less time-consuming. Here’s how we can help you in this step of how to buy investment property:
Mashvisor’s Investment Property Finder
Mashvisor is an online platform that aims to help property investors quickly find the best investment property in any real estate market in the United States. We do this through a number of real estate investing tools, one of which is the investment property finder tool. This is a powerful and heavily customizable search tool that allows a real estate investor to search for rental properties based on specific criteria using different filters, such as finding rental properties of a certain price range, in a certain neighborhood, or with a certain cap rate.
With the help of the investment property finder, property investors turn 3 months’ worth of property search into just 15 minutes!
Related: How to Find Investment Properties Using a Property Finder Tool
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
How to Buy Investment Property – Analyze the Investment Property
When you find an investment property, don’t just rush into making an offer without analyzing its potential first. As a real estate investor, your main goal is to make money from your rental property. Different investment properties have different profitability depending on a number of values related to them. So how to buy investment property that has the highest potential for profit? Through analyzing it before making the purchase!
Mashvisor’s Investment Property Calculator
This is another real estate investing tool that Mashvisor provides for property investors. It’s a versatile tool that allows you to calculate the different values related to an investment property, including the cash on cash return, cap rate, cash flow, and occupancy rate (for both traditional and short-term Airbnb investment).
Using the investment property calculator, a real estate investor can easily analyze and compare different investment properties in the same location to determine which one will yield a better return on investment!
Related: Mashvisor’s Investment Property Calculator: A Guide for Beginner Property Investors
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
How to Buy Investment Property – Make an Offer
When you’ve found the investment property you want to go for and have clarified all necessary details, it’s now time to make an offer to the seller. In this step, don’t let your emotions take over and make sure you only spend the amount that works for you! Remember, this is a business decision so the numbers have to be reasonable.
How to Buy Investment Property – Close the Deal
If the seller of the real estate property accepts your offer, the final step in how to buy investment property is not as simple as signing the papers that make the house yours. A list of things needs to happen including opening escrow, negotiating closing costs, conducting a home inspection, removing contingencies, etc. To learn more about how to close real estate transactions, read this blog.
+ 1 Hire a Real Estate Agent
Real estate agents are professionals who have been in the real estate investing business for a long time. Therefore, it comes as no surprise that they’ll know more about how to buy investment property better than anyone else! Hiring a real estate agent is optional. However, if you’re a beginner real estate investor then we highly recommend working with one. A real estate agent will guide you through the process and fill out all necessary papers. Moreover, an effective real estate agent will have the competency to find you the right rental property, in the right location, at the right price.
Final Words
How to buy investment property is a compilation of a number of steps. Once you have completed these steps, you are ready to enter the world of real estate investing and be a proud owner of your first rental property. Don’t forget to sign up with Mashvisor and use our real estate investing tools to find the best investment properties in any city or neighborhood across the United States!
To start your 7-day free trial with Mashvisor and subscribe to our services with a 15% discount after, click here.