If you’re thinking about diving into the investment property business, there are dozens of things you need to know that you might not have even considered. Should you purchase a single-family home or a multi-family dwelling? How will you finance your investment? What do you need to be on the lookout for in terms of achieving the best ROI? Here are a few tips to consider as you embark on your new investment journey.
1. Consider Convenience by Way of Online Lending
It’s probably tempting to think about going to your local bank or credit union, but those aren’t the only options today. Sometimes, online loan marketplaces are much simpler and quicker than traditional brick-and-mortar loan options. For optimal convenience, consider trying your hand with an online loan marketplace where you can compare options, rates, and terms to ensure you give yourself the best deal possible.
2. Understand the Implications of Single- and Multi-Family Homes
Even if you won’t be undertaking a huge renovation project, you’ll still probably want to put a little money into your investment. With a single-family home, you’ll only have one tenant and one set of plumbing, electrical, and HVAC work. With multi-family homes, you’ll need to deal with wires and pipes that go throughout the home to different units. This means you could subject yourself to endless hours of maintenance calls by various tenants for numerous reasons. The upkeep on single-family homes is typically much simpler than multi-family homes.
On the other hand, if you’re planning to live in one of the units of a multi-family property, you might be able to secure a better loan with a lower interest rate and down payment. You might qualify for an FHA loan if you’ll be living in the property, which means you could get away with a down payment as low as 3.5%, but if you won’t be living in the property, you should expect to put down a larger down payment—typically between 25 and 30%—and have a credit score of 680 or more.
3. Make Sure Your Mortgage Can Handle the Market
You don’t want to give yourself a mortgage, only to find out you can’t charge a monthly rent that can cover your costs. The point is to make money, not lose it. Check with a reputable property management firm to find out how much rent goes for in the area and what other costs you should consider. You’ll need to advertise your property, screen tenants, and have funds set aside for unexpected maintenance and repairs. You’ll also want to make sure you can cover the mortgage yourself, in the event your renters fail to come through with their financial obligations.
Buying an investment property is an exciting endeavor. When you’re armed with the right resources and knowledge, the entire process will be easier. Be sure to check in with a professional property management firm to ensure you’re in compliance with local and federal laws before you invite a new tenant into your property.