Investing in property has become a popular way to generate income and build wealth. In fact, owning an investment property can provide you with rental income, appreciation, and tax benefits, as well as the ability to leverage your investment. However, buying and owning investment properties is not without its challenges. Here’s what to consider before getting started, courtesy of Prominus Real Estate.
How to Purchase an Investment Property
Before you start shopping for an investment property, it’s important to have a clear idea of your goals. You’ll need to ascertain whether you’re looking to generate income through rentals or if you’re searching for a property that will appreciate in value so it can be sold for a profit. This will determine what type of property will meet your needs.
It’s also important to have a realistic idea of your budget. In addition to the purchase price of the property, you’ll also need to factor in the costs of repairs and renovations, closing costs, insurance, and property taxes. Keep in mind that, if you decide on a vacation rental, guests prefer a little luxury. It’s smart to invest in nice decor if you are going to provide a furnished rental.
There are a number of online resources that can help you find investment properties. Be sure to carry out your due diligence on any property you are considering, including researching the neighborhood, checking for any zoning changes that could impact the property, and ordering a professional home inspection. A real estate attorney will be able to review the purchase contract and help you navigate the closing process.
Prominus can also help you with a Real Estate Valuation.
Features of Profitable Properties
- Location: It’s important to research your property’s neighborhood to get a sense of the demographics, job market, and quality of schools. Also, consider its proximity to public transportation, shopping, and other amenities.
- Property type: Single-family homes are typically easier to rent out than condos, and properties in need of significant repairs will likely be less profitable than those that are move-in ready. If you’re planning on selling, properties that are part of a homeowners association may be less attractive to prospective buyers
- Rental rates: it is important to charge enough in rent to cover your mortgage, taxes, insurance, and other expenses. Research the going rental rates in the area so you can price your property accordingly.
Using a Business to Purchase Property
You may want to consider purchasing your property through a business entity. By setting up an S corp, you can protect your personal assets while still benefiting from the returns on your investment. Before setting up a business entity, it’s important to consult with an attorney or accountant for help navigating the setup and compliance processes. However, using a formation service is a significantly cheaper alternative, especially if you want to know how to incorporate your business or form an LLC.
Property Management
Once you’ve finalized your purchase, you’ll need to decide whether you want to handle the management yourself or hire help. If you live near the property and are comfortable dealing with tenants, self-management may be an option. However, this will take up a significant amount of your time and energy.
If you decide to hire a property management company, be sure to interview a number of candidates. Ask about their fees, services, and experience. It’s also a good idea to get references from other property owners who have used their services.
No matter which option you settle on, Super Lawyers points out that it’s imperative to have a clear understanding of your rights and responsibilities as a landlord. Familiarize yourself with your state and local laws so you can avoid any potential legal issues. Prominus Real Estate Legal Services can help.
Property is a sound investment that has been known to stand the test of time. Be sure to conduct the necessary research to ensure that you’re making good choices every step of the way. With a little planning, you can be on your way to reaping the many benefits that come with owning an investment property.
Contact one of our Prominus agents to run a comp analysis for you.
Author: Suzie Wilson
