Television shows dedicated to fast, profitable flips have made buying investment properties increasingly popular, but we’d advise research and caution if you’re thinking about taking this big step. We can advise you on the market trends and potential profit, point out possible properties, and recommend contractors for repairs – but you’ll need to take a hard look at your own skill set, too.
- Is this the right investment for you?
Buying an investment property will be more complicated financially than purchasing your own home. Mortgages for investment properties usually require a 20% minimum down payment and better credit, and have higher interest rates. You should also consider if you want to take on a second mortgage, even for the time it takes to repair and sell the home. If you have other large debts, such as school loans or credit card debt, you might want to pay those down first before adding to your debt load.
- Is this the right challenge for you?
Knowing it will eat into their profits, many first-time investors resist bringing in specialists for repairs, believing that a little elbow grease is all the flip will take. Of course, many buyers do have extensive home repair experience, but if you don’t, you can get in over your head quickly. We have an expert list of preferred vendors we’ve vetted and can vouch for. If this is your first investment property, don’t go for a complete fixer-upper. Look for houses priced slightly below market value that might only need some good staging and minimal repairs.
- Assessing an investment property
Usually, investment properties are offered at a profitable sales price because they need considerable work the owners can’t or don’t want to take on. Always have your realtor review the property – our trained eyes will see issues you won’t – and we’ll arrange a top-notch home inspection. We will also be able to assess whether the house will sell for enough profit – you should aim for a 10% return on your investment, after repairs and all other costs.
- Sell or rent?
Once you’ve bought the property and made the necessary upgrades, you have two choices: sell the house or rent it out. Your realtor might recommend holding on to the property if the market is slowing down or renovations took longer than expected. If you choose to rent it, you’ll have a steady monthly income. However, you’ll also need to hire a property manager, or deal with tenants and repairs yourself. Some people love being landlords, others quickly realize it’s not for them!
Buying an investment property might not be as easy as it seems on television, but if it’s the right fit for you, it can be a fascinating (and profitable!) journey.