Purchasing investment property is often seen as a ticket to a steady, passive income stream and for some astute (and lucky) investors, a path to substantial wealth. While buying a property that will yield rental income and/or a much higher selling price in the future is often a sound investment, it may present hurdles that threaten to strain your time and resources. Therefore, if you are thinking about entering the exciting and risky world of real estate investing, it is crucial to take into account various factors. Here are some things to consider:
- You will likely need a significant amount of cash before buying an investment property. Mortgage insurance is generally unavailable if you are not planning to live in the home, loan costs may also be higher for investment properties, and in addition, you might need to make repairs before renting the property to tenants.
- Be wary of properties that need significant remodeling. Fixer-uppers are the downfall of many people who are new to investing in real estate. Properties that were poorly maintained often have problems that may not be readily apparent and may require substantial time and money to resolve.
- It’s probably best to start small. To gauge your ability to manage an investment property, start with a single home or duplex. This will give you a better idea of the costs, time commitment, and unexpected challenges that investment properties typically present and how well you can handle them.
- You will need to deal with tenants. Unless you pay a property manager to handle issues with tenants you will need to act as a landlord to the people who rent your investment property. This means you will need a process for screening tenants, collecting rents, checking in to ensure that the property is being maintained, responding to maintenance requests and more.
- Explore the option of real estate investment trusts (REITs). If you would like to reap the benefits of rental income but the prospect of managing an investment property seems daunting, a REIT may be right for you.