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What Should I Consider When Buying Investment Property?

Article Details
  • Written By: Erin J. Hill
  • Edited By: Bronwyn Harris
  • Last Modified Date: 21 September 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Owning and renting out an investment property is a great way to earn an income and turn a profit, if it is done correctly. Buying investment property requires considerable research ahead of time to ensure that a wise decision is being made. The purpose of a rental or investment property is to make money, not lose it, so it is wise to do a thorough investigation of not only the house but of the surrounding neighborhoods, facilities, and comparable properties.

When buying investment property, the first thing to consider is the property itself. Does it need any repairs or upgrades? If so, how much money will have to put into the home to make it suitable for tenants or resale? If the price is more than what can be expected in earnings during a resale, it’s probably best to move on to another property.

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Since buying investment property is meant to eventually generate a profit, it is also a good idea to find out what comparable properties in the same neighborhood are going for on the market, or how much they are being rented out for each month. Take note of the size and condition of each house, and compare them to the house being considered for purchase. This way, an estimate of how much the property may rent for can be calculated. Make sure to figure out how long it will take to turn a profit on the house at the estimated rental price, and whether the rent payments would cover any loan payments that may be incurred.

Another important factor to consider when buying investment property is the surrounding area. There are certain key things to look for, including the proximity to public transit, shopping, hospitals and doctor’s offices, and restaurants. If the house is too far away from necessities, tenants may be hesitant. On the other hand, many potential renters do not wish to live in an inner city or another crowded area. The most desirable properties are somewhere between these two extremes, with an overall commute of about ten minutes for facilities.

Finally, if the property already has tenants there, it is important to discuss the potential purchase with them before any decisions have been made. Things like prior standing lease agreements are important to know about, as well as the renter’s history. Are payments made on time each month? Is it legal to raise the rent whenever it is deemed necessary? Will there be any limitations for the new owner while the current tenants are in place?

For anyone considering buying investment property, these factors should weigh in equally when the time comes to make a decision on whether to buy or pass on a particular property. These key elements will help determine the success or failure of any buying venture.

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