Although exciting, investing in real estate can be more than a little nerve-wracking; however, knowing a few insider secrets can help calm your nerves.
For instance, did you know that buying a multi-family property can be safer than investing in a single-family home? If you didn’t, and you are dying to learn more, here are a few tips shared by Hagerstown Commercial Real Estate to help take the guesswork out of turning your first investment property into a stress-free success!
Buying a Foreclosed Property Can Keep Upfront Expenses Lower
If you’re concerned about how to afford your first property, a common workaround many investors use is to purchase foreclosed properties. Not all foreclosures are homes that are in disrepair, but it’s common for a foreclosed property to need a fair amount of work. In many cases, improvements will be worth the return on investment, making this option a great choice when you need to keep your expenses low. If you’ve ever wondered whether purchasing a home warranty is worth the price, it makes the most sense when you’re buying a foreclosed property or under an “as is” arrangement. A home warranty will cover most items and home systems that aren’t usually covered under homeowners insurance, including major systems like the HVAC, plumbing and electrical. When you consider, for example, the cost of replacing a home’s AC system, which can run $5,000 or more, having a home warranty certainly is worth it.
This type of investment can be very alluring, but bear in mind that it can also be a bit tricky to finance a home that needs a lot of work. Mashvisor notes that there are several loan types available to help investors improve these neighborhood eyesores, but these loans can also come with some pretty stiff requirements and rules. If you have any questions, reach out to a real estate pro.
Before buying a foreclosure that requires repairs, you can also look into home renovation loans and other options for financing needed repairs and improvements. You can also minimize your upfront costs with DIY improvements and by focusing on repairs that matter most in terms of attracting renters. For example, if your property has an unfinished basement, you may end up attracting more people to your home by finishing this space — but make sure you set a budget, get estimates, and determine how much you afford to spend. Materials can get costly, especially if you have a large basement that needs finishing.
Investing in a Multi-Family Property Doesn’t Have to Be Scary
A lot of first-time real estate investors are timid about their first purchase, and this is to be expected. However, if you really want the most bang for your buck, consider the perks of investing in a multi-family property, rather than playing it safe with a single-family home.
Buying into this sort of property may sound terrifying, but it actually doesn’t have to be. Some of the benefits of taking this bold step include:
- An increase in passive income and cash flow.
- A safer investment than more traditional choices.
- Increased returns and profits from the start.
- More tax benefits that will boost returns.
Saving for a Down Payment Can Make Financing Much Easier
Regardless of what type of property you plan to buy, even one in great shape, Money Under 30 explains that getting a loan can be more challenging than doing so for a primary residence. The first thing you need to keep in mind is that your credit needs to be excellent to qualify. So you may need to spend some time paying down debts and increasing your score.
You’ll also need to legally form your business, which will help landing a loan. Many entrepreneurs choose to operate as an LLC, due to tax advantages, less paperwork, and the protection of personal assets. Specific tasks need to be completed to register with the state, so be sure you understand what’s required as you start the process. Working with an LLC formation service may be the solution to your problem, so look into the best LLC services online and hire an agency to help you get all of that paperwork squared away.
No matter how stellar your credit is, most lenders will also require you to have a down payment before they will approve you for a rental property loan. This stipulation can trip up a lot of investors, but now you’ll be prepared. With a little budgeting and planning, you can save up for yours.
Apartments.com points out that you may also want to stash about six months worth of expenses into an emergency savings account. Actually, it’s smart to aim for this or at least 1% of the property’s total value, so you will be financially prepared in the event that unexpected repairs or issues come up.
Managing an Investment Property Can Be a Full-Time Job
If you’re an investor with plenty of time on your hands, you may be able to get away with self-managing your new properties. If you’re an adult with a job, responsibilities and maybe even kids to take care of, however, trying to manage a rental can be a chore. Especially if you decide to invest in a multi-family residential property.
Rather than stressing out about marketing your rentals, managing rental agreements and collecting payments, you can leave these tasks up to a property manager. While hiring a property manager may reduce your initial profits, the savings in terms of your sanity and schedule can be well worth it. Plus, you can deduct fees from your taxes.
Yes, investing in real estate is a big deal, but it doesn’t have to be downright terrifying! You need to be careful and calculated, and purchasing a home warranty always helps. It can also help to have experienced professionals, from property managers to online formation services, by your side. So keep this guide handy and reach out to agents for more information.
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