If you’re new to real estate investing, there’s a lot you need to know before jumping in and purchasing your first piece of property. Here are five tips to help you prepare yourself for becoming a property investor.
Make sure it’s for you
Before purchasing a rental property, you first want to be sure that you have what it takes to be a landlord. Can you unclog a toilet and repair drywall? You’ll need to know your way around a toolbox or have the money to hire a handyman, for any issues that arise with your property. As the landlord, you must provide a suitable living space for your tenant, which includes performing regular maintenance on the property. If you’re aren’t up to that challenge, then owning a rental property isn’t the right fit for you.
Pay down debt first
For first time investors, you’ll want to avoid racking up too much debt in your portfolio. Take care of your student loans and medical bills before you consider buying a rental property. You don’t want to put yourself in a situation where you’re unable to afford to make the payments on your debt because of the cost of the house. If you’re sure that the real estate property will provide you with a greater return than the cost of your debt, then you can proceed with caution.
Get the down payment
Having the down payment is the first step to purchasing a piece of property. Typically, investment properties need you to make a larger down payment than properties that are occupied by the owner. Because mortgage insurance isn’t available for rental properties, you’ll have to put at least 20 percent down on the home.
Be cautious of high-interest rates
Borrowing money might be cheap now, but an interest rate on a piece of rental property will be higher than the interest rate on a traditional home. The cost of interest can make your monthly mortgage payment high, which can eat into your monthly profits. Look for as low of an interest rate you can find, and remember that the more money you put down, the less your monthly payment will be.
Avoid a fixer-upper
Many people who are new to property investment will think that purchasing a fixer-upper is a better choice because it’s cheaper upfront. However, a fixer-upper will require you to put a lot of money into renovating the house, and you won’t make any money initially because you can’t have tenants while the house is being fixed. Unless you’re a contractor or are good friends with someone who is, a fixer-upper is not worth the investment.