If you are looking to make money in real estate investing, you came to the right place.
Real estate is a great business opportunity to cultivate long-term financial rewards and security. Now, we are not saying it will be easy, but it is most certainly worth it to pursue. With the right attitude and persistence, you can be on your way to investing and making money in due time. ‘How to buy investment property’ becomes a popular google search question nowadays because many people are looking for a way to make money and build wealth in real estate investing.
Related: What’s the First Thing You Need in Real Estate Investing?: A Rental Property Calculator!
How to Buy Investment Property for the First Time: Step by Step
How to buy investment property step# 1: Make sure your finances are in order
Before you go ahead and purchase your first investment property, make sure your finances are in order and you have enough money to buy real estate. In order to qualify for a bank loan, you must have a good credit score as well as enough capital to secure a good mortgage plan with better interest rate. The higher your credit score, the better mortgage plan you are most likely to secure with your bank. Ideally, you want to shoot for a score equal to or greater than 720. If you don’t know your credit score, check www.annualcreditreport.com to request your credit report.
In terms of mortgage loan options, shoot for a 30-year loan if you want to keep your mortgage payments low, while a 15-year mortgage loan will decrease your interest on the loan, but increase your monthly payments. Nevertheless, run through all your options to see which mortgage loan option is best aligned with your long-term business goal and financial capabilities. Your main objective is to find the loan with the best rate.
How to buy investment property step# 2: Find a real estate agent
If you are buying your first investment property, it is highly recommended to hire a professional real estate agent to guide you through the process. An effective real estate agent has the competency to find you the right rental property, in the right location, at the right price. Real estate agents have the expertise to run the right real estate market analysis, assess real estate comps, and use Mashvisor.com to factor in cap rate, cash on cash return, and other key metrics to negotiate the right price of the rental property. Without the right due diligence, real estate investors won’t secure positive cash flow returns on their investment property and will be at risk of incurring high expenses and negative returns down the line.
How to buy investment property step# 3: Spend time at the property
Before you hone in on an investment property, make sure you figure out which kind of tenants you want to attract. And try to buy rental property that would attract these kind of tenants; if you are buying rental property near universities, you want to make sure the property is compatible with student life. If you buy a single family home, you want to ensure the investment property is fit for a family and the neighborhood is child-friendly. Without having a real estate investment strategy and plan, you will not be effective in investing in and buying the right rental property for a profit.
How to buy investment property step# 4: Location is very, very important
Before you invest in an investment property, you must invest in the right location. You have probably heard this before and don’t need any reminding, but emphasizing the importance of location is crucial for yielding positive cash flow returns and long-term real estate appreciation. Use the price to rent ratio to estimate which housing markets are favorable to buying real estate as opposed to renting. Use Masvisor’s heatmap tool to decipher the best areas for investing in real estate real time via cap rate, rental income, and cash on cash return. Choose neighborhoods with low crime rates and nearby amenities, i.e., transportation, shops, school district, etc. Capitalizing on the right neighborhood brings in the right tenants for your investment property.
How to buy investment property step# 5: Calculate your return on investment
There are 4 ways to calculate your return on investment in real estate:
1. Return on investment (ROI) = (Annual rental income – Costs and Expenses)/Cost of property
2. Mashvisor investment property calculator for your net ROI
3. Cash flow real estate market analysis
4. Capitalization rate = NOI/Property price
If you want to learn more about return on your investment, click the link below.
Related: How to Calculate Return on Investment in Real Estate: 5 Different Ways
How to buy investment property step# 6: Acquire real estate knowledge
To become an expert real estate investor, you must grasp important real estate concepts, keep up with the changing housing market trends, read real estate news, and blogs, and seek the right advice to build your business for big profits. To reap big financial rewards, you must study your investments and conduct the right real estate market analysis before you decide to purchase your first rental property.
How to buy investment property step# 7: Know your tax benefits
Real estate investing becomes your business, and in turn real estate investors are entitled to tax advantages for owning and managing their rental properties. You can claim deductions on interest, repair costs and renovations, business travel, depreciation, etc. Long story short, knowing which expenses to write off for running your real estate business can keep your net profits afloat.
How to buy investment property step# 8: Active investing vs. passive Investing
You must choose whether or not you want to ‘passively’ or ‘actively’ invest in your real estate business. To be active, you must be hands on and be front and center in running and managing your rental properties. To be passive, you hire a team to run the operations, i.e., if you own more than one rental property, it is a sound investment to hire a professional property manager to manage and keep an eye on the logistics and operations. Again, do not think being a landlord is an easy job, it requires many responsibilities towards your rental property as well as your tenants.
Related: What’s a Good Cap Rate for Real Estate Investments?
Conclusion
How to buy investment property is a compilation of many steps, including conducting the right due diligence and real estate market analysis, and being proactive in your learning in order to reap strong returns on your investments.
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