Menu Close

Thinking About Buying an Investment Property? Here’s What You Need to Know

buying an investment property

Need an Easy Extra $500+ a Month For Free?

Buying an investment property is a huge step in growing financially. For one, you have the chance to earn passive income. For another, it’s an opportunity to diversify your assets. That said, it’s also a huge responsibility, both personally and financially. If you’re going to take this step, you want to make sure that you’re well-prepared for what’s to come.

So, if you’re thinking about buying an investment property, you’ve come to the right place. We’ve created a handy guide, filled with everything you need to know about purchasing a home – and maintaining – one of these properties.

Types of investment properties

online business ideas

Find a comfy spot in your apartment or home and let’s get started. The first step in buying an investment property is determining what type of property you would ultimately like to purchase. Keep in mind that each one will have its own level of maintenance needs and financial commitments for you to consider.

Here is a quick overview to help you weigh your options:

  • Condos: Most commonly found in urban or resort areas, condos are a great choice for those looking for a smaller, simpler investment property. With condos, you own the interior of your unit, but all common spaces and amenities are taken care of by an association. There will be a maintenance fee to cover these costs.
  • Townhomes: Townhomes are houses, rather than units. However, similar to condos, the exterior of the home and any common spaces are governed by an association. In this case, there will also be a maintenance fee for communal upkeep and there may be rules governing what you cannot do to the home.
  • Duplexes/Triplexes: Duplexes and triplexes are privately owned buildings that are split up into multiple units. Here, you can have multiple tenants with no recurring fee. However, you will also be responsible for any upkeep.
  • Single-Family Homes: Single-family homes are your traditional housing set-up. Again, you’re responsible for any upkeep. This type of rental property is usually well-suited for those looking to rent to families or longer-term tenants.

What to look for in a property

how to make 200 dollars fast

Ultimately, most of what you’re looking for in a property will depend on the type of renter that you’ll eventually attract, as each one has its own set of needs and priorities.

These are the main subsets of renters that you may be looking to work with when you eventually become a landlord:

  • Vacationers: Vacation rentals have higher turnaround, with renters usually staying only for days or weeks at a time. But, when done right, they can also capture high returns. Vacationers want to be as close as possible to the main attraction, so focus on location above all else. Smaller units like condos often work well with this type of renter, especially when they boast amenities that are geared toward convenience.
  • Short-term renters: Short-term renters will rent from you for a few months before moving on. For example, these renters might be students or younger professionals recently relocating. Typically, short-term renters prefer homes that are close to amenities like shops and restaurants or public transportation. These renters also tend to prefer furnished properties.
  • Long-term renters: Long-term renters are ideal for landlords who value a steady rent check each month over the ability to charge the highest per-night rates. Typically, these renters may be families or settled professionals, and they tend to prefer a more residential lifestyle. Single-family home or townhomes are a good fit and the quality of the school district tends to be a bigger consideration than proximity to downtown.

Of course, no matter who you’re after, there are some considerations that are universal.

For instance, the amount of work that your new property requires before you can rent it out. For that, you’ll need to find a balance between the amount of money you’re willing to spend versus how much sweat equity you can put in.

Often, it’s worth spending a bit more upfront to get a turnkey home, or one that only needs cosmetic updates, than risking finding costly problems later on in a fixer-upper. You’ll also want to keep up tenants rights.

The financial implications

how to make 500 dollars fast

Financing a rental property is a bit different than one that will be your primary residence, so you’ll want to take the time to make sure you’re prepared for the expense before you hit the market.

First up, in order to secure a mortgage on the property, you should be prepared to make a much larger downpayment. We’re talking the 20% – 25% down payment of yesteryear. Plus, your credit history needs to be in great shape.

Since there aren’t any government back programs like FHA for second mortgages, you’ll need to have at least a credit score of 620.

Then, there are closing times and taxes to consider.

Unfortunately, the new Trump tax plan makes it much harder for investors to write-off some of the costs of juggling multiple properties.

The new plan cut the available mortgage interest deduction in half — capping the total amount of deductions at $500,000. It also severely limits the amount of state and local property taxes that an owner can write-off. Now, the limit is $10,000 total, between all of your properties.

Finally, there are also upkeep and maintenance costs to consider. If you’re buying a condo or townhome, you’ll likely have a monthly association fee to contend with on top of your mortgage payment. There’s also the cost of any updates that need to be made to the home. And, as the landlord, necessary maintenance is solely your responsibility.

Dealing with tenants

When you buy an investment property, there are two scenarios that you can run into regarding tenants.

Either there are already existing tenants in place, or the property is vacant and it’s up to you to find them. Here’s what you need to know about either outcome:

  • If there are existing tenants: Leases “run with the land” — meaning they do not change if the property is sold. If there are existing tenants in the home you’re purchasing, you are legally obligated to keep the terms of their lease before it expires. So, no kicking them out or raising the rent. Some landlords like this because it means a guaranteed income, but others prefer to have more control over who they rent to. In some areas, there are more stringent rent control laws in place to protect tenants. Be sure to read up on your local rent control laws to make sure you get a realistic idea of how much you could profit.
  • If there aren’t existing tenants: Buying a home without any tenants in it is more of a gamble financially because it could sit empty for a few months while you search for the right fit. Make sure your prepared to carry the mortgage for a bit. However, you’ll also have the chance to choose your own renter and to do any financial or background checks that you see fit before handing over the keys.

Ready to buy your investment property?

You can stop searching google for:

“investment property loans”

“investing in rental property for beginners”

“buying an investment property to rent”

“how to buy investment property with no money down”

“buying an investment property before first home”

“buying rental property calculator”

“buying first investment property”

“buying an investment property checklist”

As this guide will help you get started with your first investment property. If you have any questions, leave a comment below!

This article originally appeared on OpenListings.

MoneyGator Staff

MoneyGator teaches people how to make better money moves. Whether the focus is to make more money, save more money or better manage your finances, having a series of money moves will support your financial goals.
MoneyGator Staff

Ⓘ Related Tools:

Interested in making extra money? Survey Junkie allows you to take surveys and get paid up to $50 per survey which take less than 5 minutes each. Join 8,145,798 members on Survey Junkie now by signing up or simply compare leading ways to make money in the table below.
CompanyWhat You NeedEarning Potential
fundrise trustpilot$500 to Invest in Real Estate8.7 – 12.4% Annual Returns

Learn More

surveyjunkie make money

SmartphoneUp to $50 Per Survey

Learn More


rovermakemoney

Be a Dog-Lover (or cat!)$250 Per Week

Learn More

lyftlyft trustpilotVehicle$60 Per Day

Learn More

airbnbairbnb trustpilotApartment or House$650 Per Week

Learn More

Powered by My Millennial Guide

Related Posts

Need Cash Now?
zippyloan

If you actually need money now, then you can opt for a personal loan. When you need money in a hurry ZippyLoan is where to go.

You apply for a loan through the ZippyLoan site, if approved they send your loan application to one of many loan providers.

You review the loan details and e-sign if you like what you see. No risk in checking what offers you'll get. You can borrow between $100 and $15,000 as soon as tomorrow.

Loans service for up to 60 months.

ZippyLoan connects borrowers to lenders through their network of lenders. They'll find you the lowest interest rate and is one of the best no credit check loan. You can visit ZippyLoan here.

shares