3 questions to ask when buying an investment property
Thinking of investing in real estate? Then, ask yourself these questions before buying.
Buying an investment property for capital gain and not as a primary residence is a smart move. Investing in real estate can be a great vehicle for cash flow and wealth - if done right.
We talked with Brent Sills, a Century 21 real estate agent, to discuss how home buyers can be successful in their second property purchase.
For Sills, you need to ask yourself three simple questions:
When you buy a second property, you need to do it carefully. By knowing the answer to these essential questions, you will see if you are heading in the right direction.
Whether you are a first time home buyer or an experienced investor, you always need to understand the why.
Why are you investing in real estate? Spent some thinking about the end goal. Your reasons to become a real estate investor can vary. It could be to have a second income stream, to flip it and resell it, or to invest in your future retirement home.
Whatever the reason, weight the pros and cons of your decision. For example, buying a rental property has many advantages. You have rental income coming in every month, but you also have to consider the fact that you will be a landlord. And every landlord has responsibilities - and tenants to deal with.
'Without knowing your why the hard work of navigating and managing your investment will be too much, and you will fail,' says Sills.
Once you know your why, you need to understand how. As a second home buyer, the home buying process is already familiar. You know you need to save a down payment, get a mortgage with a good interest rate and a real estate agent to handle the transaction.
For investment properties, you need the money to cover both your new and current mortgage. Sills advice is that 'you need a war chest. Cash ready to put down on a property. Work hard and do whatever it takes to get you in the door. If you are already established, then you will be able to liquidate liabilities and use savings to get started.'
The question of when to invest in real estate depends on more than the market. It depends on you.
Before you do anything else, the number one thing an investor needs to do is be informed. If you jump into the waters of real estate investment without knowing even the basics, you will drown. 'First, learn the difference between asset and liability. Assets pay you regularly and often. Liabilities cost you. Know this before you buy and get started on the right foot,' says Sills.
Real estate investment is a road for short or long term wealth. For those considering a second property, the next step is to choose the right property. Start your search today.