7 Things to Consider Before Investing in a Property

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When it comes to making big decisions, such as investing in property, it’s important to weigh all the pros and cons first. Here are seven things you need to consider before taking the risk and moving forward:

 

1. Your budget

One of the most important factors to consider is your budget. How much can you afford to invest in property, and what are your monthly repayments likely to be? Are you going to buy the property with cash? Or you will try to get an FHA loan with 3,5% and go with 4-unit.

For most investments, if you have your primary residence you need to put down at least 10%. It’s important to factor in all associated costs, such as down payment, monthly fees, legal fees, and closings costs related to obtaining a mortgage.

7 Things to Consider Before Investing in a Property

 

2. Your desired location

Another important factor to consider is your desired location. Do you want to buy in a city or out in the suburbs? Are you going to buy in an area you know well, or you will get your property out of state? For people who are starting a journey in investing it’s better to stick to your local market and neighborhood, you are familiar.

After your first investment, you can get another property in a different city or even a state. To do that you need to make sure that you have a team of people who will be responsible for maintaining, fixing, and managing the property if you’re going to rent out your investment later.  All these important factors will play into your future decision.

 

7 Things to Consider Before Investing in a Property

 

3. The current market conditions

It’s also important to consider the current market conditions. Is the market booming or is it on the downturn? What are the average prices in your desired location? Will you be able to make a profit on your investment? The house prices are unpredictable, however, based on the mortgage rates, house demand, and a few other factors you might find a short time answer if you’re going to do a quick rehab and fast flip.

 

7 Things to Consider Before Investing in a Property

 

4. The type of property you want to buy

Another thing to consider is the type of property you want to buy. Do you want to invest in a residential property or a commercial property? What’s your budget? How much work are you willing to do on the property yourself? If you know how to do construction?

If yes, then buying a property close to your current residence might be a good idea. If you have a team of contractors and relationships with electricians, plumbers, and people who can help you with the process then the location shouldn’t be a factor in making this decision.

 

7 Things to Consider Before Investing in a Property

 

5. The length of the investment

Another thing to consider is the length of the investment. Do you want to buy and hold for the long term or are you looking for short-term property investment? If you’re just starting then a quick flip/rehab with an FHA loan might be a better option however the FHA prohibits selling your home for the first 90 days (FHA flipping rule).

There are also multiple investment options with 10% down by going with conventional loans. It depends on your budget and if you’re going to be renting the property or flipping there are multiple products available out there.

 

7 Things to Consider Before Investing in a Property

 

6. The risks involved

Of course, no investment is without risk. It’s important to weigh up the risks involved in property investment and decide whether they are worth taking for you. These risks could include market fluctuations, interest rate changes, and potential problems with the property itself.

There might be a higher risk when you trying to make money quickly by rehabbing the property and selling within the next year. You must deduct all expenses including taxes, paying realtors (5-6%) and all costs related to fixing the property. Lower risk has long term investments where you can rent out 3 units and live in one of them (buying 4-unit with FHA loan with 3,5% down) or rehabbing a single home family, renting it out and doing a cash out refinance after that.

When going with FHA, you need to check are maximum allowed FHA loan limits in your county set by HUD. The money taken out can be spent on another investment. This way you don’t need to pay realtors and don’t need to pay income taxes because you haven’t sold anything. It’s a great example of building your long-term residual income.

 

7 Things to Consider Before Investing in a Property

 

7. The returns you can expect

Finally, it’s important to consider the returns you can expect from property investment.

If you like to make money within 3-12 months then the riskier option of doing fix and flip is the way to go. If you’re looking for long-term income then sticking with a 1-4 unit property might be better a option for you. All the below questions are very important when making a final decision.

What’s the average yield in your desired location? How much capital growth can you expect?

What are the associated running costs? All these factors need to be considered when making a decision. So, before investing in property, take the time to consider all these factors. Only then can you make an informed decision that’s right for you. Happy investing!

 

knkj Investing in a Property

 

AUTHOR BIO

Peter Beeda is a licensed Realtor in Chicago Area with over 6 years of experience in residential lending and owner of Short Sales Certified where He helps people with buying short sale discount properties and educating to consumers with a service through a network of lenders and realtors.

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