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Four Factors To Know When Buying An Investment Property

Here are the top four factors you need to know when buying an investment property:


1. Projected income. Your ultimate goal is to get a profitable return on your investment, but you need to cover your monthly mortgage payments. How much rent should you charge? Go by the one half % rule. If you’re buying a property for $500,000, you should hope to be able to get $2,500 in monthly rent (i.e., 0.5% of the purchase price). In some parts of the country where properties are more expensive, you may want to follow the one third % rule. 


2. The tenant situation. You don’t want to buy a property without a plan and get stuck in a nightmare situation, so ask yourself: What’s going on with the tenants? Are they paying on time? Are the rents under market? Get some clarity on that situation. You should be able to get a copy of the lease agreement from the current owner. Some properties go down in value due to mismanagement, so determine whether or not the current owner is trying to escape a messy situation and leaving you to deal with a mismanaged property. 


3. Overall condition. There is no such thing as a perfect property. Every home needs a little bit of a fix up; it just depends on how much you’re willing to pay to get the job done. A new roof, for example, may be expensive, but it’s not a complicated fix and can be completed in just a week or two. Replumbing the whole house, on the other hand, is a different story. See what costs you’re willing to cover before making any investment decisions. 


4. Utilities. If you’re looking to buy a multi-family property like a duplex, you need to know about the utility systems. Are the water and electric systems separate for each unit or lumped into one? Things can get complicated if they’re lumped into one. How much rent do tenants pay if gas and oil prices fluctuate? That type of situation always affects your bottom line.

Hope this guide was helpful, and please do not hesitate to contact me at 647.930.1888 or to discuss the purchase or sale of your home, investment advice or if you would just like more information.