Buying an investment property can be a great financial decision; whether you want to purchase a primary residence, flip a property and sell it, or rent it out to make a profit. If you have chosen the latter option, here are a few things to take into consideration.
Down Payment: Be ready to put down a larger down payment on the house – at least 15-25%. Expect higher interest rates and slightly more restrictive guidelines.
Property Management: Are you ready to be a landlord or will you have a property management company handle the busy work? If you are taking on the task of being the landlord, be prepared to be available 24 hours a day. If something stops working in the middle of the night or while you are on vacation, you will be responsible for finding a solution to the problem in a timely manner. If you plan to hire a property management company, they will take care of the paperwork, finding tenants, fixing repairs, and more, but it will come at an added cost to you.
Expected Rental Income: Will the investment property make a profit or end up being a money pit? If this house is currently being rented out, ask the owners how much they charge in rent each month. Check out other rentals in the neighborhood and see what the average monthly rental income is. If it isn’t high enough to cover the mortgage and other expenses attached to the property, it may be best to pursue a different property.
Expenses and Costs: Do you have the funds for an extra expense account in case any problems emerge in the house? You never know when a problem will crop up. Whether the AC unit breaks or the refrigerator stops working, make sure you have enough funds to pay for sudden repairs and replacements.
Risks of Renting: If you don’t have tenants for a month, will you be able to pay the mortgage? If the current tenants damage the property, will you be able to afford the repairs? What happens if you go to check on the property and your tenants flew the coop?
Buying an investment property is a big decision, but if you do your research and are prepared for any and all possibilities, it can be a great investment and pull in some extra income each month! Talk to a loan officer near you for more information.