Have you made the decision that the rental business is for you? Are you looking to diversify your investment portfolio and get away from stocks, bonds, and mutual whatever they are calleds???
Before you empty out your 50431-K and start making offers on properties there are a few things you are going to want to consider…again…this is best done BEFORE you buy…
1 – Do you have the time and/or the money?
I’m not talking about the purchase money or the down payment here…I’m talking about the time and/or money required to maintain your investment. Somebody has to go there whenever it snows to plow, be available to respond to a broken pipe, clean out and turnover an empty unit…etc…
Are you able to do all of these things or are you going to have to hire somebody as your on-call maintenance person. Keep this in mind because it could mean the difference between buying a 12-unit property requiring a part-time maintenance person or buying a 4-unit property that you can self-manage and maintain. The one thing you don’t want to be doing is dumping all of your profits back into labor costs just to keep your head above water. If you can’t put the time in to do the work yourself you are going to have to factor that into your financial analysis of any property you are considering.
2 – Have you Consulted Google Maps ?
What I’m trying to say here is you want to consider how far away the property you are looking to purchase is from where you live. If you are going to be making regular trips to check on your property or you are going to self-manage and take care of your own repairs, you want to know how far and how long you might be driving on a Saturday night. Even if you have a maintenance person, do you want to be able to drive by once and a while to see your asset, check on tenants, showings, etc…how far are you willing to drive without making a quick service call an all-day affair?
3 – Do you have the support of your wife/significant other & family?
This is a big one for some people and is very often not considered. You’re about to make a big investment of both money and time (If you haven’t considered #1 you need to reconsider it). You are potentially going to be giving up weekends to paint a vacant unit and spending nights doing bookkeeping after an 8-10 hour day in the office…(What? Did you expect you would quit your day job and just jump right into it?) You are going to have to put in many hours in the beginning to get things to run smoothly and without the support of your family, you won’t be a very popular person when you are home. Not to mention that having your family with you painting will make the job go that much faster…
4 – How many columns of For Rent ads are there in the local paper?
What if you bought your first apartment house and the listing broker that sold you the property didn’t explain that there were three recently constructed apartment complexes within 3 miles of your newly acquired property? Would you want to buy an apartment house in a market with an over-abundance of vacant apartments? You might consider the next town over that is only an additional 5-10 minutes drive in the car for you and because of its access and proximity to the commuter rail, apartments are at a premium. Spend some time researching for rent ads in the local paper and get a sense of what neighborhoods/towns are demanding higher rents with lower vacancies and which areas are seeing an increase in vacancies and as a result, reduced rents.
5 - What type of an investor are you?
Are you looking to purchase something you can babysit for 20-30 years while you watch the appreciation and build a portfolio that you can use to supplement your retirement? Or are you looking for a “flipper-upper” you can renovate, clean up, and put back on the market in 6 months or less? If you’re plan is to buy and hold, consider buying a property with a majority of the renovations completed and a few nice apartments. Maybe there is one or two that require updating but you can hold off until you have some turnover. You don’t want to jump into a property and have to replace the furnace, the roof, and the windows in the first year. Be sure you have a repair history for the property you are buying so you can plan ahead for future improvements and budget accordingly…
Are there other considerations before you purchase your first investment property? There sure are…this is sort of a jumping off point. If you have suggestions, please comment below and share what you believe to be important considerations for new investors. If you enjoyed this post and found it to be informative, please use one of the links to share with others.
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