Investment Properties 101: A Guide for Beginners
Updated: Aug 17, 2022
If you're looking to make a lucrative investment that can provide you with a consistent source of extra income, a rental property may be the answer. The Balance explains the benefits—like the fact that property appreciates and increases value over time. So, if you decide to sell your property in the future, you'll likely make a good return on investment.
Success starts with the right property. Find out what it takes to make your investment property a success.
Choose your property wisely.
Whether you are buying a property and planning to rent it out or sell it, you need to make sure it's marketable. Look for cities with good infrastructure, connectivity, and quality of life. U.S. News & World Report offers city rankings that can help you pinpoint appealing places. For example, Houston is ranked third in the top places to live in Texas, making it a good bet.
Beyond the general geographical location, consider details in relation to your target audience. Are you hoping to rent the property out to visiting tourists? Then it's helpful if it's well-connected, with attractions and restaurants nearby. In contrast, if you want to target families for long-term rentals, you might consider the property's school district.
Take care of financial arrangements before you make your offer.
The U.S. housing market has heated up since the COVID-19 pandemic, so it's critical that you are prepared to make a competitive offer on whatever property you want. Taking care of your finances in advance is advisable. Credit explains that if you make a larger down payment, it will be easier to get approved for a mortgage. Forming your business legally by structuring it as an LLC, partnership, or corporation further legitimizes your venture in the eyes of lenders, so learn what it takes to launch by reading the ZenBusiness starter primer.
Ideally, you want to get pre-approved for a loan. This will show sellers that you have the financial capacity to make an offer and ensure that they see you as a serious buyer. When researching mortgages, shop around. Compare key points like terms (how long you have to pay the mortgage back) and interest rates before deciding on a final option.
Invest in your property to make it more marketable.
If you really want to make a good profit from an investment property, you'll likely have to invest some additional money into fixing it up before you put it on the market. Boston University provides a guide to what people look for in AirBnb rentals that can inspire you. For example, amenities like a full-service kitchen and washer or dryer are attractive extras.
Don't forget the outdoors, too. For example, if you plan to rent to families or people with pets, adding a fence to the property is a plus. You can easily find a local contractor to get the job done. Installation costs vary depending on the fence size and materials. Before settling on a fence contractor, get a quote and make sure they're licensed and insured. You can also read reviews online via platforms like Angi.com to get a better read on who to hire.
Figure out who will manage your property and how.
Once your investment property is ready, your job isn't done. There's still the question of how the property will be managed. For example, the property needs regular maintenance—and it needs to be turned over between renters if you're doing short-term rentals. If you live in the area, you might consider taking care of it yourself.
Alternatively, you can hire a property management company to take care of this work for you. Fortune Builders explains that these professionals will take care of general maintenance and more. They can handle everything from arranging landscaping and repairs to marketing a property when it's vacant.
Buying your first investment property is an exciting decision. The above guide can help you take this step with confidence.
Brittany Fisher has spent more than 20 years as a CPA. She runs her own site, Financiallywell.info where she shares her knowledge about taxes, personal finance and general financial literacy hoping to help anyone who may benefit from it.