Tips for Novice Property Investors

Bargain prices on foreclosures and even on traditional home listings are tempting a new group of individuals into investing in property. Even if you have owned a home for years, owning a home and renting it to someone else brings with it a different set of challenges. Before you take the plunge and buy an investment property make sure you consider the following tips:

Evaluate

Evaluate your finances to be sure you can handle the additional mortgage payment on an investment property. [If you are paying in cash, this of course isn’t an issue, but do make sure you are keeping plenty of additional cash available for maintenance and taxes.] Don’t assume your mortgage will be covered by the rent. In some cases, landlords have empty units for months at a time, in others, the market rate rent is less than the mortgage payment and you will have to make up the difference each month.

Research

Do your research. Just as when you buy a home to live in, you want to make sure you either know your local extremely well or work with a real estate agent who does. Understanding home values is more important than ever with an investment, since you are looking at this purchase not as an emotional choice of a home for your family but as a way to eventually earn a profit. Buying low and selling high sounds like a good plan, but if you buy a home in an area flooded with foreclosures it could take a decade for the value to come back.

Estimate

Estimate your potential rental income. This one is “research, part two”, after you have analyzed home sales, analyze your local rental market. Just because your mortgage payment is $1500 per month doesn’t mean that you can find a renter who will pay that much. In order to attract and keep a renter, you’ll need to be within the range of market rents.

Be a Landlord

Be prepared to be a landlord. This means taking care of maintenance issues, dealing with renters who don’t pay on time and perhaps being wakened in the night by a locked-out tenant. If you are not buying property near where you live, it can be harder to make sure the home is maintained, so you may want to consider hiring a management company. If you are not handy, make sure you establish a good relationship with a reliable contractor.

Check Creditworthiness

Carefully check the creditworthiness of potential tenants, even if they are acquaintances. While it’s great to rent to someone you know, make sure you are openly checking their credit and making all agreements in writing.

Sort Your Tax

Tax rules are different for investors. Make sure you consult www.IRS.gov for the rules about what you can and cannot deduct off your taxes, since the rules are far different for property that is not your primary residence.

Investing in real estate can be rewarding, particularly now since home prices have declined. Like any other investment, the best success will come to those who do their research and make informed decisions.