How to Buy Your First Investment Property [2022 Guide]
When people are looking for ways to put their money to work, real estate is often one of the first thoughts that come up. After all, real estate is considered one of the most common forms of investment out there. The question is, do you have the knowledge necessary to make your first real estate investment purchase?
If you plan to buy an investment property soon, you’ll need to know how to go through the process. Keep reading to learn how to buy an investment property.
Find the Right Market
You may see a lot of homes on real estate websites, but that doesn’t mean that every one of them will be a good choice for your first investment property. If you make a mistake and buy a home in an area that isn’t popular or dangerous, you will have a hard time getting your money back.
One of the biggest keys to an excellent first investment is picking the right neighborhood. If you’re looking to flip a home in the future, the best place to look is up-and-coming areas.
Not only will these areas have undervalued homes, but they also have a good chance of increasing in value in the near future. You can renovate the home to improve its value and rent it until you’re ready to sell.
Determine What You Want to Buy
There’s no one way to invest in real estate. You have many options available to you, with each one requiring different amounts of effort. Here are the main types of real estate investing to research.
Buy and Sell
One of the most common reasons people invest in real estate is to make a quick flip. The investor looks for undervalued properties that need work and renovates the properties. In most cases, they can walk away with a good profit.
You can find a lot of these properties by looking through foreclosures and people selling their homes as-is. Many of these homes need a lot of work, and regular homeowners don’t want to put much effort into a home they just purchased.
There are both short-term and long-term timeframes with this method. Short-term flips usually happen within a year. Long-term holds rely on the market going up along with renovations to improve the return on investment.
Rental Properties
The next primary investing type for real estate is rental properties. In this scenario, you’re investing in single-family homes, duplexes, townhouses, and apartment buildings. Your goal is to find a property, fix it up, and rent to tenants.
This investment strategy works great for people looking to create a more passive stream of income. Your goal is to get more money in rental income than your total expenses for the property.
You’ll keep this up until you’re done being a landlord. You can then sell your property for the appreciated value to cash out.
REITs
Not everyone wants to invest in real estate actively. That’s where investing in a REIT comes into play.
A REIT is a real estate investment fund. Instead of scouting for investment properties yourself, you’ll give your money to a fund to gain ownership in its holdings.
Doing this is a stress-free way of investing in real estate and will free up your time to explore other investment opportunities.
Line Up Financing
Once you know what type of property you want to invest in, you’ll need to get your financing ready for your first buy.
For many new real estate investors, this means getting a mortgage. Head to your local lenders to see what your options are. As long as you can prove that you have a reliable income, getting a mortgage for an investment home shouldn’t be too challenging.
Of course, mortgages aren’t your only option when it comes to real estate investing. There are also private investors and lenders like DFW Hard Money out there looking for someone to do the heavy lifting. If you can prove that you have a solid strategy, one of those people may take a chance on you.
Build Your Team
You may be able to start your real estate investment journey on your own. However, you’ll spend a lot of time and energy doing things you likely aren’t great at handling yourself.
One of the best things to know when buying an investment property is to build a team if you want to take things seriously. Your team can help you get the little details right instead of guessing at things the first time around.
Your team is even more critical as you grow your investment portfolio. You’ll spend far too much time dealing with minor issues if you don’t have your team. A team will help you scale and grow your investments even more.
Find Your First Property
Now that a lot of the hard work is complete, it’s time to start searching for your first real estate property. If you looked through the up-and-coming areas you want to buy, you already have your starting point.
Once you find a house that looks appealing, you’ll need to perform a cash flow analysis. Look into how much the property will cost, the amount repairs will cost, and any potential profit you’ll make after everything is said and done.
While it may be tempting to jump straight into one of the first properties you see, try to avoid doing this. You want to maximize your chance of success with your first deal.
Now You Can Buy an Investment Property
Even though anyone with money to invest can get started with buying an investment property any time, that doesn’t mean there aren’t things to learn beforehand. Keep the above investment guide in mind when you buy an investment property for the first time, so you don’t miss any critical steps in the process.
Are you looking for more advice that will help you maintain your investment properties after you buy? Check out the blog for more real estate investing advice.
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