Posted: Buying Investment Property
Your property will be safe from fluctuations in the economy if you follow these simple rules
Your first property choice needs to be a good one; it is best to start out on a good foot. Luckily, picking a good property is neither hard nor does it require much technical knowledge. Remember our previous posts – you must always keep property improvement in mind. Look for property that is structurally sound (will not need a new foundation poured, does not have excessive dry rot or termite damage, etc.). When you find a property that is structurally sound but is in need of repair, you should estimate the cost of repairing; the cost of bringing the property up to good condition needs to be less than that of the new construction cost of the home.
When looking for property, you should also make sure that the income from the property be sufficient to pay the mortgage and operating expenses (insurance, tax, utilities if not paid by the tenant, etc.), and even then, it should still spit off enough extra money to give you a decent return. You will not get huge returns when buying small properties such as your beginning ones.
It is best, when looking for property, to find property whose rent is a bit less than that of the average rent in the area. Many people look for property that is a bit more luxurious; therefore, demand a bit higher rent, because they think they will make more money. That’s true; they will make more money, if they can rent it. While it is great when times are good, your less expensive properties will be much more likely to attract tenants when the economy is bad. You should always look for property that is a bit less expensive to rent than the average in the area.
Also, when looking for property, try to make sure that the rents do not exceed weekly take home pay for the average earner in the area. You do not want tenants who can barely afford to live where they are; you do not want tenants who are neck deep in expenses, because they will take off to a cheaper property when given the chance. So, these two concepts combined produce a valuable rule; this rule determines how you look for property: your property’s rent should be a bit below the average weekly take-home pay of the average worker in the area.
Given this, you want to buy the biggest property you can possibly afford; this will serve you better than being “safer” and buying smaller property. Remember, the bigger the seed you plant, the bigger tree you will have.
Remember the rules established in this post when buying property, and you will have very safe investments; your investments will be safe even from fluctuations in the economy.