Considering starting to invest in real estate? Here are four things you need to do before buying your first investment property in .
Review Your Credit
The first thing you need to do before buying your first investment property in is to pull your credit reports because you need to know your credit score. Request a copy of your credit report from all three bureaus. Double-check that all information is correct and make sure to dispute any errors with the respective bureau. Make sure you keep up on your payments because lenders like to see that you have no late payments for at least the past 12 months, but the longer the better. This helps show them that you will continue to make payments on time. A low debt to income ratio will also convince a lender that you are able to handle the additional mortgage payment. Pay down credit cards and other loans as much as possible, preferably to maintain a 30% utilization ratio or better. This usually indicates that you are using your credit lines responsibly.
The second thing you need to do before buying your first investment property in is to save up a down payment of at least 20%. If you make a larger down payment than required, it will cut down on the total principal of the loan. The less money you borrow, the more likely the lender is to accept your application. With a large down payment, good payment history, and low utilization ratio, a lender may not place quite as much weight on your less than perfect credit score, but those factors all depend solely on the lender.
The third thing you need to do before buying your first investment property in is research and become familiar with the area. Make sure the neighborhood is in demand; this will help you find renters when you’re ready. Check out the schools, entertainment, access to shopping, and groceries. You will want to make sure you choose an investment that would work for multiple family types. This will give you the best chance to find a good renter in the future. You will also need to look into the current rental supply on the market to make sure it isn’t flooded, this will indicate a low demand for the area. To make the best investment, you want to pick a location that isn’t too flooded with inventory but make sure the prices aren’t over-inflated.
Prepare a Budget
The fourth thing you need to do before buying your first investment property in is to prepare a budget. When you find a property you are interested in and want to make an offer, it is smart to prepare a budget before you make an offer. You will need to factor in repair costs, monthly expected income, and operating costs to determine your ROI to see if the property makes sense to purchase and hold in your portfolio. Even if you are using a property management company, you will still need to keep track of your own finances for every rental property you own. You will need to make sure the property maintains a positive cash flow, otherwise, it’s not worth the investment! Make sure to factor in any traveling or management expenses on top of the mortgage payment and taxes, and keep a modest repair fund available for the property. Your budget should be reviewed every quarter at a minimum to make sure your real estate investment is performing as it should.
When you work with us at Discreet Homebuyers, we can help you through all of these steps. We thoroughly check all of our properties to maintain a selection of quality investments. We can help you review your credit reports, research the area, and walk you through budget preparation.