Buying an Investment Property

Man and woman touring a home

By Bonnie Pappas, Mortgage Loan Officer

Real estate has been very lucrative to a lot of people. However, you best be well versed before jumping right in with all of your money. Below are some things to consider before you start.

Are you ready to be a landlord? Do you know your way around a toolbox? Are you a good handy person with drywall repairs, unclogging a toilet? People starting in the real estate mostly do all of their own repairs. Otherwise you will eat into any profits.

Pay Down Debt First. Don’t put yourself in a position where you lack the cash to make payments. Always have an extra stash.

Get the Down Payment. Investment properties require at least a 20% down payment, which is more than owner occupied properties.

Higher Interest Rates. Interest rates are higher on investment properties than traditional mortgage interest rates. Are you prepared to spend the extra cash?

Plan for Costs. Plan to pay 1% of the property value annually for repairs, updates and other miscellaneous tasks. This does not include taxes, insurance or landscaping.

Don’t Buy a Fixer-Upper. It’s tempting to buy something that is priced below the market and only needs minor repairs to start. Unless you have a contractor who works very reasonably or you can do it yourself, it will add to your costs. Try finding a home that is ready.

Find the Right Location. Look at low property taxes, school districts and amenities in the area.

Keep your expectations realistic. Are you looking for long term investment that will contribute to your retirement income, or are you looking for monthly disposable income? Make sure the numbers make sense before you move forward.