The economic aspect of investment property management and purchase can be particularly confusing especially for those who are investing in a property for the first time. You don’t want to end up making several mistakes that cost you more than the property is bringing in.
Some tips will help you with investment property management and others that will help with buying your first property. Not knowing some of these economic tips can put you in significant debt as the worst-case scenario or with a property that is barely making you any profit as the best-case scenario.
For starters, you don’t need to get a very expensive home. The more expensive the home, the higher its expenses will be. Maintenance and everything else will cost more with a bigger and more expensive house. It’s recommended that you start with a home with a value of about $150,000.
The location of the home is another important factor to consider. If it’s located in an area with a high crime rate, then it won’t bring in much money because the only way you’re going to make it attractive to tenants is by lowering the cost of the rent. On the other hand, a property in a great neighborhood with great schools and malls nearby, for example, would be a very wise investment.
Consider the operating expenses of your property. Don’t expect to make 100% profit from the rent you collect because that’s not realistic. Operating expenses should ideally be between 30 and 70 percent of gross income. For example, if you’re renting the place for $1,000 per month, then the operating costs of the place should be between $300 and $700. Naturally, the lower operating costs, the more profit.
Down payment for investment properties is higher than that for a place where you’ll live. You might have paid less than a 5% down payment for your home, but down payments for investment properties are usually much higher. Additionally, paying more first will save you later on because the remaining sum will have an interest rate. By paying a higher down payment, you’ll be able to pay the rest of the cost faster and with lower interest.
Finally, investment properties are a risk. Some people become rich while others fall into debt. Those who still have student loans or medical bills to pay off may not want to add more pressure to their financial status by investing in property. Perhaps you should wait until you’re in a more economically stable position before taking a risk with investment property. Of course, if you’re barely in any debt and you’re not worried about it then go ahead and invest.
Investment property management isn’t a blind risk. You need to do the math and consider all options first to guarantee that you don’t end up losing money. Consider the type of property and its location, as well as your financial status, before rushing into a decision.