Buying an investment property can have many rewards in both the long and short term, but in addition to the rewards, there are several dangers you need to be aware of. Doing your homework and planning your first investment purchase thoroughly can make the difference between a money pit and a retirement plan. Alternatively, you can make use of a professional management company.
Condition of the property
One of the most important considerations is the refurbishment costs and ongoing maintenance requirements of the prospective investment property. It can take up valuable time obtaining suitable quotes for reliable builders and building a relationship with a refurbishment team.
Dealing with tenants
In our opinion, it is advisable to hire a property management company to find tenants and deal with any minor repairs. A good property manager will cost up to 10% of the rent you collect and is well worth the expense.
The property manager will screen tenants, draft a solid lease agreement, hold security deposits and deal with the legalities in the event of eviction. You would not want to get involved in the eviction process unless you really know what you’re doing.
You would not really want tenants calling you at home when their toilet is clogged at 3 o’clock in the morning, either! Most property management companies have handymen on standby for these types of issues and generally can get things done for a reasonable cost.
Financing and returns
If you can afford to buy the investment property outright, consider how it will impact your returns.
If you buy the investment property for cash, all you have to pay is taxes and insurance, leaving you with monthly income. Is this the best way to make your finances work for you? An alternative could be to refinance your investment property and release your capital for another property. Bear in mind, investment properties are not as easy as primary homes to finance and you may need to research suitable lenders.
Some final thoughts
There is no one right way to buy and manage an investment property and these are just suggestions about how to start.
Sometimes, it is worthwhile working with a company who can help to build a portfolio for you. It is important to look at the costs in terms of monetary value and time, especially if you are building a portfolio out of your own area.