Interested in Investing in Real Estate?
Questions To Ask Yourself Before Buying An Investment Property:
Am I Financially Stable?
Investment properties require a much higher financial stability level than family homes. Mortgage lenders require borrowers to have at least a 20% down payment for investment properties. Also, be sure you have enough money in your budget to cover the initial home purchase costs (like your down payment, inspection, and closing costs) as well as ongoing maintenance and repairs. The idea is you need to budget more money than you think you need for regular and emergency home repairs. Some states allow tenants to withhold their rent payments if you don’t fix broken home utilities on time. Therefore, as a landlord or rental property owner, you must complete essential repairs in a timely manner.
Investment property expenses don’t just begin when tenants move in. You also need to budget money for advertising and credit checks to make sure you take in the best tenants possible.
Bad tenants can increase your expenses dramatically. We recommend reviewing multiple applications, knowing your decision for a tenant was a good one.
Is The Return On Investment (ROI) There?
Savvy investors calculate their approximate return on investment (ROI) rates before they purchase a property. To calculate your ROI on potential property investments, follow these steps:
- Estimate your annual rental income: Search for similar properties that are currently up for rent. Find an average monthly rent for the type of property that you’re interested in and multiply that rent price by 12 for a year’s worth of income.
- Calculate your net operating income: After you estimate your annual potential rental income, calculate your net operating income. Your net operating income is equal to your annual rental estimate minus your annual operating expenses. Your operating expenses are the total amount of money that it takes to maintain your property every year. Some expenses include insurance, property taxes, maintenance, and homeowner association fees. Do not include your mortgage or interest in your net operating expense calculation. Subtract your operating expenses from your annual rent estimation to find your net operating income.
- Find your ROI: Next, divide your net operating income by the total value of your mortgage to find your total return on investment (ROI).
Our Loan Officers here at Guild Mortgage can help you learn and walk you through this.
Do I Have Time To Manage?
Investment property management takes time. Before you decide to buy an investment property, make sure you have plenty of time to maintain and monitor your space.
- You must put up advertisements for your space, interview potential tenants.
- Run background checks on tenants.
- Make sure that tenants pay their rent on time.
- Perform maintenance on your property and make timely repairs if something in the home breaks down.
- You also must do all of this while working around your tenant’s “right to privacy,” a legal standard that prevents you from dropping by unannounced without at least 24 hours of warning in most states.
Should I Hire A Property Manager?
Guild Mortgage has many property management companies we can recommend!
However, you need to decide whether you want to handle property repairs, tenant management, and maintenance yourself, or if you’ll hire a property manager to manage the daily maintenance on your behalf. Property management companies take both scheduled and emergency repair calls and check up on your property. Some property management companies also offer tenant placement services and eviction processing for an additional fee. In exchange, the property management company takes a percentage of your monthly rent. If you live far away from your property or you don’t have the home repair skills to fix your own property, hiring a property management company may benefit you.
Get On The Path To Owning An Investment Property
Are you ready to take advantage of the benefits of Real Estate Investing?
Let’s get you Pre-Approved*! We are happy to answer any additional questions you may have.
* Pre-approval is not a commitment to lend.