We’ve all heard the phrase “…a home is the largest investment most people will make…” at some point when talking to a lender or anyone remotely involved in real estate. For the most part, this is true. But, there are some folks who want to take real estate one step further and actually have their investment work for them.
This is the point we are talking about today. Investment property and what to expect from your first investment property. As with all real estate transactions, your situation will be different than others looking to break into the world of investment real estate. Some questions you might want to ponder are:
- What is my level of risk/return on investment?
- Do I want to start out with a single family or multifamily unit?
- Who is going to manage the unit?
Whether you have a large chunk of change or a small amount set aside for the down payment or purchase, there is still an associated risk/return on your investment. How much do you feel comfortable with and what are you expecting in return?
This is a good time to do some research on what property expenses are like for the area in which you want to invest. It is also a good time to set some realistic expectations. There are plenty of urban legends floating around out there about booms and busts related to investment property. Setting realistic expectations will set the tone for what to expect from your first investment property.
Through your research you will likely see what types of investment properties are available in your desired area. This is a good opportunity for you to compare, not only prices, but strategies on how to live while transitioning into property management.
By that I mean take into consideration your own living situation. Some investors who purchase multi family units live in one unit while fixing up, and ultimately renting out, another unit. By doing this, the investor basically lives free thanks to rent covering a portion of the mortgage.
Or another strategy for single family homes is to use the home as your primary residence. Taking this one step further, for homeowners who are “under water” in their current residence, they could buy an investment property and rent out their primary home. Using rent money to cover the primary mortgage, plus taxes and insurance, until property values rise.
And lastly, who will manage the property? Repair needs can happen at the most inconvenient times, are you willing to be there for all of it? Or would hiring a property manager make more sense? Property managers usually take a portion of the rent as payment for their services. Take this into consideration when determining how much rent you can charge for your chosen area.
How to Rent Your New Investment Property
When you’re to the point where it’s time to rent out your property, make sure the first step you take is a strategy for screening your potential renters. Repairs on damages done by careless or destructive renters could far exceed their rent payments or deposit. Any College Station Realtor who owns rental property can attest to this.
There are services available to landlords that can help with this process. Look into companies or subscription services that can run rental or credit history. This is a good place to start when determining a tenant profile for your property.
The next step would be to draw up a lease. It might be worth your time and money to hire a real estate attorney to help construct a binding legal document. Try and cover all the bases when it comes to potential scenarios concerning renters. Pet policies, deposits, late fees and the amount of time given before renewal or move out are all negotiable. Talk with an expert to determine your comfort level on approaching these different subjects. For example, if you have wood floors in the property, you might not want to allow dogs.
As a Realtor, I can tell you that a lot of quality traffic is generated from a sign in the yard. Plus, if people in the neighborhood see the sign, they might have friends who they would like to make neighbors. And if potential renters are familiar with the neighborhood, they might already know what sort of rent to expect, avoiding any “sticker shock.”
When you are ready to sell your investment property make sure you don’t make these mistakes when listing your College Station Real Estate.