Ready to Invest in Income Properties? 5 Tips to Get Started
Investing in income properties can provide an array of short-term and long-term financial benefits, including regular cash flow, tax deductions, potential appreciation, and more. We asked Jim Starr, realtor with Edina Realty, for advice on getting started.
Do Your Due Diligence
“The classic real estate mantra of ‘location, location, location’ is especially important when selecting income properties, as the quality of the neighborhood impacts the desirability of your property, the type of tenant you’ll attract, and how much you can charge for rent,” says Starr. Think carefully about the neighborhoods you want to invest in and visit Zillow, MLS, or Trulia to find properties for sale, purchase histories, tax information, and estimated mortgage costs. To get the biggest bang for your buck, look for properties with as many amenities nearby as possible, including public transportation, a supermarket and other stores, a public park, and good schools.
Create Your Team
Develop a relationship with a local realtor to help you locate properties that meet your investment objectives and a local mortgage company to provide the loans. Consult with your accountant to review the tax benefits of each property and your financial advisor to develop a financial plan to fund home purchases, reinvest profits, and cover the cost of vacancies, home repairs, and other unforeseen events. ”Whenever possible, I recommend working with mortgage companies that are locally owned and operated, so you can build personal, face-to-face relationships,” says Starr. “When you find a property that you want to buy, you need loan experts who know you as a person, not a file number, and respond instantly with the information you need, otherwise you could lose the property to another investor.”
“Unless you have unlimited financial resources, start with a single property,” says Starr. If you’re open to renovating or remodeling, invest in a townhome or a single-family home with great bones that needs some TLC, fix it up, and either resell it at a profit, or rent it out and create cash flow. You can then use the cash to purchase another, larger property, such as a bigger home, a duplex, or even a fourplex. “If your parents are thinking of right-sizing, consider buying their home, renting it out, and helping them find a new property that better fits their lifestyle,” says Starr. “If you have children, you could buy a house, rent it for five or 10 years, and sell it to pay for college, or gift it to the kids when they graduate from college or graduate school.”
Find the Right Landlord
“Decide whether you want to be a property owner or a landlord,” says Starr. Managing an income property (or several) requires time and labor, so if you enjoy interacting with people, don’t mind doing yard work and snow removal, and have a network of home repair experts, being a landlord may make sense. But, if the idea of taking late-night calls from renters with frozen pipes fills you with dread, you’re better off finding an individual property manager or a property management company that charges a reasonable fee for their services.
Maintain the Right Mindset
“Being a real estate investor requires a commitment of time and energy, and a willingness to work hard,” says Starr. “Right now, with so many people getting into real estate investing, it can take time to find the right property at the right price, but opportunities are still out there. The residential single-family market typically slows down in the fall, which makes it a great time to get out there and find properties that may have been languishing on the market, snap them up, and start creating cash flow.”
Interested in income property investing? Your Cambria® MortgageTM expert can explain the various loan options, determine how much you are pre-approved to borrow, and help you get started.