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Jun 10

Top 10 things you should consider before investing in an income property

Posted by abiao at 14:02 | Default | Comments(0) | Reads(1706)

Investing in real estate can do miracles for your financial future. The market is stabilizing, and increasingly more people are looking to get into property investment. Some will make it, others won't manage to buy more than one or two properties. What's the secret to success in this field? What do investors need to develop financial freedom? Here are 10 things you should know before investing in income property.

1. What's your goal?
Do you want to make money? Become a millionaire? Have financial freedom? Have a goal in mind and do whatever you can to pursue it. Formulate a plan and find a way to achieve everything on that list in a reasonable amount of time. Property investment is a journey. To get to your destination you have to find a way to get there. Most investors get lost along the way because they're not capable of crafting a good plan. They get distracted by deals that look too good to be true, and they end up making a lot of mistakes.

2. Have a strategy in mind
Now that you know where you're heading, it's time to implement a strategy to help you achieve your goal. Start by building a sizeable asset base via capital growth. Purchase an undervalued property in an area with an extensive capital growth history. Search for a unique type of property. Make sure it has something different, something the others don't have. Look for a property that can help you manufacture capital growth through redevelopment and renovations.

3. Property type
Choose an ideal type of property and make a sensible choice. You have to invest in something that can bring constant demand for both tenants and owner-occupiers. Nowadays, increasingly more people are converting backyards into balconies, and gardens into sunrooms, so investors should have these aspects in mind prior to investing.

4. Location, location, location
It might seem cliché, but as an investor you should never buy property without assessing the neighborhood first. There's no need to buy a property in the most luxurious area of town, but it's important that you know the district a bit. Pay a visit to your prospective property in different time intervals, on the weekdays and weekends. Make sure the neighborhood is comfortable enough and that the location has everything a future homeowner might need (schools, supermarkets, markets, hardware stores, and so on).

5. Financing your property
Paying for an investment property is a lot easier that you think. Hard cash is the best because it spares you from having to deal with loans and banks. Yet, if you'd like to use greater leverage, place a down payment. To cover the remaining cost, take out a mortgage. Be careful when using a loan. Assess terms and interest rates, and steer clear of adjustable mortgage rates.

6. Hiring a bookkeeper
Real estate investing comes with many benefits, however you can't do it all. You will deal with a lot of paperwork, so rather than make a whole mess and complicate things even more, it's best to hire a bookkeeper to keep an eye on the numbers.

7. Have an exit plan
In the real estate business, investors should always begin with the end. Know exactly what you will do with your investment, prior to buying it. Back in 2008, the market was stable; everyone started buying properties with the sole goal of selling high. Unfortunately, the market crashed and many investors lost their investments. Always have a plan B in case things go south the first time.  

8. Self-management vs. professional management
Whether or not investors should manage their properties is an individual decision. It depends on the investor's plan, availability, skills, and personality. Hiring an average property manager will cost you about 8% of the monthly rent; however, hiring a skilled property manager should help you make repairs cheaper and decrease vacancy.

9. Know your investment expenses
Many first-time investors underestimate investment expenses. They're aware that repairs will be necessary every now and then, yet they don't really know that there are other costs involved like: legal fees, utilities, accounting, evictions, scheduled maintenance, and capital improvements.

10. Assess the competition
The real estate market is a saturated investment field. This reduces your chances of landing substantial rental returns. It can also create capital appreciation issues. You should do some research before investing to make sure the area is not an overused rental neighborhood.

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