5 Tips for Buying an Investment Property
Are you looking to expand your investment portfolio? If so, you might want to consider purchasing an investment property. The real estate market has stabilized over the last few years, and it’s useful to have a tangible asset that’s appreciating in value as well as generating income for you. Whether you choose to buy a home to rent to a long-term tenant or use it as a short-term vacation rental, it will put some extra money in your pocket on a regular basis in addition to increasing in value over the long term.
However, as with any major investment, it’s a good idea to know exactly what you’re getting yourself in for before you dive in. Here are 5 factors to consider before buying your first investment property.
1. Evaluating Your Debt
Even though real estate is often a savvy investment, it does involve taking on debt in order to realize a profit. A mortgage on your primary residence isn’t a problem, but take a good hard look at any other debt you may be carrying. Talk with your financial advisor about whether your current debt level can handle taking on an extra mortgage.
2. Qualifying For a Mortgage
While you’re talking with your financial advisor, you should also look at the costs of carrying a mortgage on a second property. The required down payment for an investment property is much higher than for a primary residence – usually at least 20% of the purchase price. Additionally, the interest rate on the mortgage will probably be higher than what you’re paying for your current home. Knowing this, evaluate whether you can not only qualify for a mortgage, but maintain payments on a second one.
3. Becoming a Landlord
If you’ve ever rented before, you know that managing a property is a big job. You’ll be responsible for collecting rent, seeing to any maintenance issues, and even evicting your tenants (which, hopefully it won’t come to that). You’ll also need to be familiar with Florida’s landlord-tenant laws. If the idea of being a landlord doesn’t appeal to you, don’t worry! You can choose to contract with a property management company who will handle the job for you.
4. Choosing Your Tenants
If you’d rather not be the landlord for long-term tenants, consider renting your property to vacationers. Websites like Airbnb and VRBO make it easy to find renters, and the Naples area has no shortage of tourists looking for a place to stay! From families looking for a beach vacation to “snowbirds” from northern climes who like to spend their winters in Naples, you’ll have your pick of renters.
5. Calculating Your Profits
The rental market in SWFL is hot enough that you’ll still be able to turn a profit, even with the costs of buying an investment property, as long as you’re careful. Make sure to set the rent at a level that will cover your costs without going higher than what the market will handle. It’s a good idea to ask a real estate appraiser to do a market rents analysis to help decide what a reasonable monthly rent would be. If you’re planning to lease your property to vacationers, take a look at similar homes on VRBO or Airbnb to see what the typical rate is. Aim for a profit margin of around 10%.
Real Estate for Savvy Investors
When you’re buying a property in Naples, Bonita Springs, Fort Myers, or Estero to add to your investment portfolio, an experienced and knowledgeable mortgage broker will be an invaluable asset. Contact Nina Link for expert advice on the current market.