Guide to Your First Income Property

In today’s economy, investing in real estate might seem like a bad idea. But if you take the time to learn some principles and follow some specific steps, you’ll reap a plethora of benefits as a real estate investor.

EDUCATION, EDUCATION, EDUCATION

The first thing you need to do is to learn all you possibly can about real estate investing before you look at your first property. You can read books, watch DVDs, attend seminars or take classes. You’ll need to learn this such as:

• How to evaluate a property so that you won’t get burned
• How a property can generate cash flow and income
• How depreciation works
• Why “no down payment” mortgage schemes are often a bad idea
• How to recognize situations in which risks are worth taking, and those where they aren’t

POUND THE PAVEMENT

Once you’ve learned the basic concepts, it’s time to get out there and start looking for investment property. There are several things to keep in mind as you try to find the best property possible that will fit into your investment strategy such as:

• Look close to home, because you’re more familiar with the area
• Consider the property’s potential for resale as well as rental
• Determine whether necessary renovations would be too costly
• Evaluate the seller’s motivation
• Get a home inspection
• Keep emotion out of the transaction
• Be prepared to walk away if the conditions aren’t right

SECURE THE MORTGAGE

As you prepare to finance your investment property, make sure you keep track of the costs of the property transaction. Take into consideration the mortgage and closing costs, and remember that you will be paying a slightly higher interest rate on your mortgage by virtue of the fact that the property is for investment purposes as opposed to being your primary home. Shop around to find the best rate.

There are a few things you will want to consider when it’s time to finance your investment property, such as:

• Make the largest down payment you possibly can
• Avoid no- or low-down payment loans, which are very difficult to get anyway
• Make sure your credit rating is as good as it can possibly be, as this will help you get a lower interest rate on your mortgage
• Consider financing with a smaller neighborhood bank or credit union
• Look into owner financing if traditional loans aren’t an option for you. A motivated seller may be willing to take this route.
• Look at alternate options for financing. A home equity line of credit, a loan against a life insurance policy, or cash from a credit card may provide the money you need. Just realize these are riskier options.

BEWARE OF THE UNEXPECTED

The most important thing you need to remember as a novice real estate investor is Murphy’s Law. If things can go wrong, they will. Do your best to have contingency plans in place to deal with unexpected setbacks or expenses. When you do your homework and carefully consider all your options, real estate investing can be a profitable and rewarding activity.

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