Buying Guide for First-Time Property Owners

Buying Guide for First-Time Property Owners
  • Opening Intro -

    Real estate offers incredible advantages for investors.

    As a passive income source, it never dries up. Instead, it provides you income without loss of assets.

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Besides, with time, the underlying asset appreciates in value. This makes investing in real estate an excellent source of retirement income. It shields you from a sequence of return risks and diversifies your asset allocation because it eliminates the need to sell assets to earn income.

The skills and knowledge you need to purchase your first property are attainable. Anybody can learn about investing in real estate. Here are tips to guide you when purchasing your first investment property to avoid common pitfalls.

Don’t Be Distracted by Your Emotions

Usually, when buying a home, people follow their heart more than they actually think about it logically, which is okay because this is where you’ll be living for most of your life. But don’t let your emotions cloud your thinking when buying your first investment property.

Consider it simply as a business investment, so be logical and negotiate to get the best price. Remember, getting it at a lower price gives you better chances of earning a higher profit from it.

Do Your Research

Purchasing any property and calling it a rental does not guarantee success. Before delving into an investment, have a coherent plan and a logical strategy on how to achieve it.

Are you looking for a single or multi-family property? What type of area appeals to you? What specific price range do you have in mind? Do you want to manage it yourself or employ the services of a property manager?

These are just some questions you need to answer. Owning a rental property can be gratifying, but it can also dwindle your business if you invest in a bad property. After knowing the type of property and location you are looking for, you can begin working with the numbers.

Secure a Down Payment

You will need at least a 20 percent down payment to purchase your first investment property, unlike the 3 percent down payment on the house you’re living in. This is because mortgage insurance does not cater to investment properties.

Besides, investment properties need higher down payments than regular buildings and have stringent approval requirements. Also, keep in mind the renovation expenses before paying for your down payment.

Find a Suitable Location

You don’t want to be stuck with a rental property in an area that is depreciating rather than stable or progressing. A location with population growth and with a rejuvenation plan underway indicates a potential opportunity for investment.

When selecting a profitable investment property, consider an area with a decent school district, low property taxes, and lots of amenities such as shopping centers, movie theaters, and parks. Also, an area with a growing job market, low crime rates, and access to public transportation may indicate a bigger pool of potential renters.

Use Leverage, Not Cash

Most real estate investors prefer using leverage for purchasing a property. This means you will need to borrow money to buy your rental property. Although this is another type of debt, it has several advantages.

It allows you to enjoy the benefits of owning real estate even with little money. It also increases your potential return on investment compared to buying fully with cash.

Invest in Landlord Insurance and a Competent Attorney

It is crucial for every landlord to have landlord insurance. This type of insurance can protect you from losing your entire portfolio. You should have this besides the homeowner’s insurance.

Purchasing landlord insurance helps protect you against lost rental income and property damage, and it gives you liability protection as well. You also need to safeguard yourself and your investment in the event of your incapacitation or death.

This is where an estate law firm becomes necessary. Thus, seek the help of a reputable Los Angeles estate law firm to help you in estate matters.

Find a Real Estate Agent

There is a significant difference between buying a primary residence and buying a rental property. You want to be sure you get the best deal. On a rental property, every dollar you spend reduces the monthly cash flow.

Employing the help of a real estate agent will help you get the finest deal. With an excellent plan and financing in place, your real estate agent will have a simple time getting you the property you really desire. Then, you only need to remain patient to get an excellent property.

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Know Your Legal Obligations

Landlords have strict legal obligations. Apart from the lease your tenant’s sign, each state levies its own laws to protect both tenants and landlords. It is important to know the rules you must abide by as a property owner.

Ignorance of the law can wreck a successful real estate investment. It is crucial to understand, for instance, the rights of your tenants and your obligations regarding fair housing, eviction rules, security deposit, and lease requirements to avoid legal issues.

After An Accepted Offer

After your offer is accepted, you may need to hasten. You should know what work needs to be done on the property if any. Start making calls to whosoever you want to do it and find out if they are available.

If you’d like to have a property manager, start interviewing them to determine if they are a good fit. You can also start looking for new renters.

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Though you have to wait until you complete the ownership process before showing the house, you can advertise online with the description and address to gauge interest. Take your time to find the best tenants because good tenants are the juice of any rental property.

So, do a thorough check on every applicant to ensure they are a good fit. Once you close and have a renter on the property, start having fun.

Buying your first investment property it’s a tremendous step towards running a rental portfolio. With many properties generating rental income, you can collect rent passively. However, it all starts with purchasing your first rental property.

Image Credit: buying guide for first-time property owners by envato.com

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