According to new survey data from Gallup, real estate investing is still the top pick for investors (31%). Interestingly, even though Baby Boomers and Gen X love real estate investing, Millennials are getting in on the game as well. Foreign investors also covet the real estate market in the United States.
Are you interested in buying your first investment property, but not sure where to start? Well, you are in the right place.
Read on as we provide six tips to help a beginner like you choose the best investment property. This decision can make or break you as an investor, so you must spend the time and choose wisely.
1. Focus on Cash Flow First
The first and foremost thing you need to learn is how to calculate and assess cash flow on the various properties you are looking at. No matter if a property looks great on paper, if it doesn’t have a good enough cash flow, it shouldn’t be a candidate on your buying list.
You want to build passive income as a real estate investor. But you won’t be able to do that if you keep purchasing properties with negative or minimal cash flow.
This is especially true when you are a newbie at the game. Once you gain some experience, then you can fudge this rule a bit. But for now, make cash flow your king.
2. Don’t Fall in Love with a Property
Too many beginner investors make this mistake, and it’s easily avoided. Do not, under any circumstance, fall in love with a property.
You are buying these properties because you are trying to run a profitable business where you make money every month. Don’t fall in love with a property and then forget about everything else in the real estate investing rulebook. This will end up clouding your judgment and you will jump through unnecessary hoops to buy a property that might not even be worth that much effort.
Also, if you are going to fall in love with a property, then fall for one with great cash flow and low maintenance fees. At least that way you can still make money from your first real estate love.
3. Consider the Location and Rental Market
Another thing you will want to consider when purchasing your first investment property is the location and the rental market in said location. The property should ideally be located in an area with a great school and/or lots of job opportunities. Also, it should have a great transit system nearby or be close to a highway for easy commuting.
Also, another thing to consider is whether it will be easy for you to rent out this property to a family or young professionals. You don’t want to buy cheap property in an area and then realize that the reason it was so cheap was that no one wants to live in that area.
Finally, the rent should cover all of your monthly expenses and then some. This way you are not going to lose money every month on this property.
Pro tip: Think about what you look for when moving into a new area, and then apply those criteria when purchasing your investment property.
4. Avoid Fixer-Uppers as Your First Investment Property
Fixer-uppers are a great investment property, as you can make a ton of money in a short period of time. BUT, you will want to stay away from these sorts of investments on your first deal. Buy a fixer-upper (if ever) when you have a few properties under your belt already.
These can be a complicated and complex investment. Beginners like you might not be ready for it all yet.
This doesn’t mean that you can’t ever invest in a fixer-upper. You can do so, once you have a team of contractors working for you, and have lots of time to spend renovating a property.
5. Get Pre-Approved for a Mortgage
It will be less stressful and much easier on your mental health if you can already have a pre-approval sitting in your pocket before looking at and buying your first investment property. This is because it will give you a clear idea of how much money you have to invest and how much property you can afford.
And it will also give you leverage in your negotiations since you are already pre-approved and can buy the property faster than someone else who would need to wait for the approval. Time can be of the essence in buying valuable investment properties, so this pre-approval can be your ticket to getting in there quickly.
6. Do You Have the Time to Manage the Property?
Finally, consider if you have the time to manage your first investment property yourself, or if you will need to hire a property management company to do this for you. There’s no shame in choosing the latter option.
If you start your investing career by having a property manager on board from the beginning, it could make your landlord life much easier. You might be able to grow your property portfolio faster because you are not spending all your time fixing toilets or answering disgruntled tenant calls.
Now You Are Ready to Buy Your First Investment Property
That all sounds easy, doesn’t it? Well, putting it into practice might be a bit harder than it sounds. But if you follow the tips exactly, you should be able to do it.
We are here if you need help finding your first investment property in Memphis. We have a portfolio of properties that you can choose from to start building your financially free future. Contact us today and buy a property from us no matter where you are located.