Questions You Should Ask Before Buying an Investment Property
Posted on November 24, 2008
Filed Under Property Investment |
In the world of real estate investing, the things that can go wrong are innumerable. While no investor can predict the future and save himself from all loss, asking questions and doing research can offer a great deal of protection. Asking the right questions is particularly important during the pre-purchase phase of any real estate investment. It is during this phase that investors need to ask the right questions in order to avoid purchasing a property that will bring them nothing but sorrow.
The first thing that you should be concerned with regarding any investment property is its marketability. In other words, are you going to be able to sell it? In many cases, the best source for this type of information is your real estate agent. Your agent will be familiar with the housing market in the area of the property and may even know past details concerning the property itself. Some details that might help you determine how well a property will sell include how desirable the community is to consumers; how quickly other homes in the area are selling; how quickly the home has sold in the past; and how long the house has remained on the market looking for a buyer.
The next consideration regarding any investment property is how much profit it could bring. While profit is not guaranteed in real estate investing, you can increase your residual income by purchasing a property that has the highest potential for profit. Questions to ask your agent include how much below resale value is the home priced; how much could the property be worth after renovations; and are other homes in the area appreciating or depreciating in value.
You may also want to ask your real estate agent about financing options open to you as an investor as these may differ from options available to those wishing to purchase a property as a primary residence. Tax laws are another great topic of discussion for those wishing to make an investment in real estate.
Other questions that you may want to consider are those that would be asked by any ordinary consumer looking to buy a property. These questions are property specific and involve the condition of the property. You should always know what repairs need to be done on the property and what mechanics are in working order and which ones are not. Boundary disputes and health issues are often disclosed to buyers before purchase. If they are not, you should ask for the information rather than assume that everything is fine.
Doing the necessary homework before a property purchase is vital for being successful in real estate investing. Ask any investor and he will tell you that most failed investments can be avoided if the right questions are asked.
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6 Responses to “Questions You Should Ask Before Buying an Investment Property”
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Investment property question…Buy it now or wait?
My fiance and I are renting. He makes 60K a year and I make 40K. We are getting married in Oct. so we have VERY little savings left since we are paying for our wedding ourselves. We have about $5,000 left buy a home but found an excellent deal on an investment property. Asking $120,000 worth $120, 000(3 bed 2 bath) they will accept our offer of $105,000. Should we use our savings towards this investment property or wait and buy our own home which will take much longer b/c we are waiting to get something really nice. Is it stupid to buy and investment property first before buying your own home?
Thank you for your prompt responses!
Congrats on your coming wedding. The smartest thing a young couple can do today, especially you 2 for you have an unusual amt of money each month is: Forget the enormous cost of the large wedding. Downsize to about 1/2, then with some of that saved money buy a home you like and somewhat larger than you will need and begin socking away as much cash as you can looking to the day when you will surely have children. Find a Christian Broker or banker and ask him to help you invest. Later it will be easier and you will have the werewithall to then buy another larger home and quess what, the house you will be moving FROM will be your next investment and look at all the money you SHOULD have saved by then. Money will NOT make you happy but it sure makes life easier and you will always be able to share it with others who need your assistance.
God Bless and pass it on!!!!
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I don't know where you live but that sounds like an excellent price for a 3 bedroom. For that much you would get about a 1/3 of a 1 bedroom apartment where I live.
I can't see any harm in not owning your own home, it makes you feel more secure I guess.
Some people prefer to never buy their own home and have their moneys in investment properties, stocks, etc. This leaves them "mobile" and not stuck at one location if employment or other opportunities come up far away from their owned home.
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Not necessarily bad to buy investment before home.
For example if you live in a market were the prices are sky high but the rentals are fairly affordable (eg west coast) you might be quite savy to hedge your housing cost by buying an investment property elsewhere (eg east coast), and use the rents toward paying your own rent. You'll be somewhat protected if housing costs increase nationally, and if you loose your jobs ten years down the line you'll have housing and equities/assets somewhere as opposed to purely renting and not saving/investing.
However, if the housing prices are in line with fundamentals it would be much better to wait and buy your home rather than doing it this round about way–which does have some different risks and more complications.
One of the important complications is that managing and overseeing a rental property is often much more complicated than you might initially guess, and if you're both holding jobs that may be hard to manage.
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Walk before you run………
If you asked should you use your capital to buy or start an income producing business or buy a home where the both of you could live, I'd go for the business………
Putting $5,000 down on a property costing $105,000 leaves you in a financially troublesome place.
Closing costs on your loan $4,000
Insurance on the property $1,200
Taxes $2,000
Mortgage $7,900 663 per month X 12
Repairs painting etc $1,200
Incidental Stupid Crap $ 600 appliances breaking
Vancany $1,000 one months rent
Total -$13900 assuming you roll the
closing cost into the loan
Income +$12,000
Net Income (-1,900)
Of course you are counting on the appreciation of the property and everything going perpect…….IT WON'T
Suggest you consider a DUPLEX, DOUBLE, TWO FAMILY…
name varies by region………..
Give you lots of opportunity to halucinate on your taxes plus, you see your tenant regularly and you live in your investment.
You get someone to pay off your mortgage and if the place is vacant for a month it won't be as hard of a hit
Meanwhile, you both make a good income, you can save, three years down the road, buy a house that will fulfill your dreams and then rent out both parts of property #1 and have investment income with less risk………don't forget about the room for halucination on your tax returns
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Depends. is it cash or installment? Do they have a good terms like zero percent for a couple of years?
Actually that price is reasonable if i am going to compare the price of our other high end projects here in our country. Try to check first how much the property value near the house that you are interested to buy so you will have idea if the property that you will planning is a good deal.
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