It’s exciting to buy a home, and particularly interesting if that home is an investment property. However, buying that kind of property comes with a lot of myths and speculation. You don’t need to worry too much about that, but you should be aware of some of the ways in which investment property will be different, so you don’t make a mistake with your purchase. Real estate mistakes can be very costly, and they’re best avoided if at all possible. Fortunately, by understanding the seven myths that are the most commonly seen with investment property, you can avoid problems and make the right choices for your growing financial portfolio.
1). Why are you investing?
Why you’re investing is a question you want to answer. People invest to make money, of course, but there are many different ways to do that. Since you’ve chosen real estate for at least part of your investment strategy, it’s important that you’re clearly aware of why you think that’s the best idea for your needs. It could be because of the low cost of many homes right now, or there could be other reasons, but anytime you make an investment decision it should be strategic. Without strategy, you could see financial problems. The myth that real estate is always a good choice simply isn’t true, so make sure it’s a good choice for you.
2). What’s available locally?
By buying a home for investment purposes, you are taking a big step toward building wealth and a long-term income. One of the safest ways to do that is to start out small, and focus on your local area. That can keep you out of any serious trouble, because you won’t be spending a lot and you’ll be close to the property you have chosen. Proximity matters at first, since you want to be sure that you’re getting what you’re paying for, and that the property is handled correctly. That’s much more difficult to do from across the country than it is from down the street. Focus your efforts on your local area. You don’t have to branch out and go big to be successful.
3). Should you branch out?
Buying a property that you’ll use for investment purposes is different from buying a home to live in. Branching out can be a good choice for established investors, but might not be the best choice for a first-time investor. Still, it depends on your definition of branching out. Purchasing in the next town over because you can get a great deal isn’t the same as buying a property three or four states away, that you’ve never even seen. While it’s generally better to stick close to home at first, there are some instances when branching out a bit does make more sense.
4). Do you need a company?
If you buy something in your own name and get sued because of an accident or an injury, you could be held liable. If you have an LLC (a Limited Liability Company), you reduce some of your risk. There are still times when your personal assets could be in danger, but you’ll have more protection. Most smaller landlords don’t worry too much about that, though. They just make sure the property is safe, maintained, and insured. While having an LLC can mean extra protection, it’s not a requirement to buy an investment property.
5). Can you manage the place yourself?
Be sure you’ve done your market research when you buy an investment property, so you don’t end up spending too much. Then, decide if you want to spend more to manage it. A lot of people who only have one or two investment properties manage them on their own, while others hire a property management company right from the very beginning. The choice is completely up to you, but make sure you know what you’re paying for if you hire a property manager. Additionally, make sure you know how to maintain the property the right way if you handle it yourself. You can do it, but you’ll need the right knowledge and skills.
6). How much should you charge for rent?
When you choose the right property for your investment needs, you’ll want to have an idea of how much rent you can get. You may have a figure in mind that you want to charge, but that doesn’t mean your potential tenants will pay it. Check with other rentals in the area and see how much they’re going for. Then see if they stay rented, or if they have a lot of problems with vacancies. You want to get top dollar, but you also want to charge a rent that’s fair, so your tenant will want to stay there once they get moved in. Tenant turnover costs money, and a fair market rent can help keep a good tenant in the property.
7). Does that make you a business owner?
If you own an investment property, you’re an investor. Whether you’re a business owner will depend on your state and local laws. Some places look at the definition of “business” differently than others. If you have any concerns about how buying investment property will affect things like your taxes, talk to a CPA and an attorney before you buy. The myth that you can just buy up property and make a killing financially isn’t that realistic, and there’s much more to it than that. Make sure you know all you need to before you make a purchase, so you don’t end up regretting it.
2 Point Highlight
Buying a property that you’ll use for investment purposes is different from buying a home to live in.
Be sure you’ve done your market research when you buy an investment property, so you don’t end up spending too much.
