Ask yourself 5 Questions Before you Buy Investment Property
Alexandria Anderson asked:
Deciding to buy investment property is one of the best decisions you will ever make for your future. However, it isn’t something you can decide to do one day and then rush out and do the next. There is a process that you have to learn and lots of information to digest. If you think you have done that already and you are now prepared to go out and make your first purchase, here are five questions to ask that will help you to prepare.
What type of investment property am I interested in? Are you interested in a single-family unit, a duplex or maybe a multi-family complex? Are you interested in hotels or motels? What about raw land? How you answer this question will determine other things that you do later, such as how you go about financing your investment. It is also best to focus on a particular type of property so you don’t go on wild goose chases and so your team knows what they should be helping you with.
Do you have a specific area that you are interested in? Are you going to invest in the city where you live? If not, what part of the country do you want to invest in? The Internet is the best tool for determining what area of the country you would like to put your time and money into. Ken McElroy, author of “The ABCs of Real Estate Investing,” calls this Level I research. Later, when you have determined a part of the country and a city in which to look, you will need to decide what neighborhood interests you. You will find that during McElroy’s Level II and Level III research.
Do you have a financing strategy? The type of investment property you are looking for (as well as your existing equity) will determine how you can make your purchase. If it is a small property such as a house, you may choose to pay for it outright. However, even if you don’t have the finanacing in place, if it is a piece of property that has made money in the past, the bank will probably give you a loan. They know that they will get a ROI regardless of what happens to your investment. If you are looking at a larger piece of land that you can’t afford outright, you will probably be able to get partners or other investors to contribute.
Do you have a team in place? You can’t do this successfully without a team. This is simply because of the large amount of work involved, and so many different types of expertise needed, that you simply can’t do it all. There is not enough time for you to become proficient enough with real estate law and accounting, plus broker your own deals and manage your own properties. It is necessary to delegate. That is why McElroy recommends you start with an attorney, an accountant, a broker and a management company. After that, you may also need appraisers, tax consultants, a surveyor, a structural engineer, an architect, an estate planner and more.
How much do you have to spend on repairs? This is essential. Knowing this will help you choose the areas of town to look around in because some areas may be full of old buildings or some newer buildings may actually be in serious need of repair. You will want to what you are getting into and whether you can afford it.
This is by no means a complete list of questions. Once you start your investment property adventure, you will find a never-ending list that you will need to pay attention to. But these will get you going on the path to asking yourself the best questions. Sometimes asking the appropriate questions is more effective than the answers themselves.
Deciding to buy investment property is one of the best decisions you will ever make for your future. However, it isn’t something you can decide to do one day and then rush out and do the next. There is a process that you have to learn and lots of information to digest. If you think you have done that already and you are now prepared to go out and make your first purchase, here are five questions to ask that will help you to prepare.
What type of investment property am I interested in? Are you interested in a single-family unit, a duplex or maybe a multi-family complex? Are you interested in hotels or motels? What about raw land? How you answer this question will determine other things that you do later, such as how you go about financing your investment. It is also best to focus on a particular type of property so you don’t go on wild goose chases and so your team knows what they should be helping you with.
Do you have a specific area that you are interested in? Are you going to invest in the city where you live? If not, what part of the country do you want to invest in? The Internet is the best tool for determining what area of the country you would like to put your time and money into. Ken McElroy, author of “The ABCs of Real Estate Investing,” calls this Level I research. Later, when you have determined a part of the country and a city in which to look, you will need to decide what neighborhood interests you. You will find that during McElroy’s Level II and Level III research.
Do you have a financing strategy? The type of investment property you are looking for (as well as your existing equity) will determine how you can make your purchase. If it is a small property such as a house, you may choose to pay for it outright. However, even if you don’t have the finanacing in place, if it is a piece of property that has made money in the past, the bank will probably give you a loan. They know that they will get a ROI regardless of what happens to your investment. If you are looking at a larger piece of land that you can’t afford outright, you will probably be able to get partners or other investors to contribute.
Do you have a team in place? You can’t do this successfully without a team. This is simply because of the large amount of work involved, and so many different types of expertise needed, that you simply can’t do it all. There is not enough time for you to become proficient enough with real estate law and accounting, plus broker your own deals and manage your own properties. It is necessary to delegate. That is why McElroy recommends you start with an attorney, an accountant, a broker and a management company. After that, you may also need appraisers, tax consultants, a surveyor, a structural engineer, an architect, an estate planner and more.
How much do you have to spend on repairs? This is essential. Knowing this will help you choose the areas of town to look around in because some areas may be full of old buildings or some newer buildings may actually be in serious need of repair. You will want to what you are getting into and whether you can afford it.
This is by no means a complete list of questions. Once you start your investment property adventure, you will find a never-ending list that you will need to pay attention to. But these will get you going on the path to asking yourself the best questions. Sometimes asking the appropriate questions is more effective than the answers themselves.