Investment Properties: Here's what you need to know before diving in
- Posted: September 23, 2020
- By: Nations Lending
So you love to watch HGTV on the weekends, you insist that Joanna Gaines just HAS to be your friend and you always seem to be one step ahead of the Property Brothers. The likely outcome of this is that you are the perfect person to flip houses, right? Maybe. Let’s dig into all you need to know about investment properties before you bid on a house “site unseen.”
Associated Costs
Do you have the financial stability and ability to purchase an investment property and complete the project successfully? Keep in mind there are usually hidden surprises that even the best home inspector can miss. Will you be doing all of the repairs yourself? Don’t forget to estimate the cost of materials. If you have contractors involved, not only do you have the cost of materials but labor as well. Borrowing money from the bank means you’ll have interest to pay. And of course, the mortgage and tax payments, utility bills and more. You should also note that mortgage insurance is not available on investment properties so you will need at LEAST 20% down on a traditional loan.
Do you have the personality?
Flipping investment properties can be stressful and time consuming. Can you take on high-stress situations? Does your lifestyle allow for long days, nights and weekends? How do you react when something doesn’t go the way it’s supposed to? What would you do if your flip turned into a major flop? These are things to consider before electing to purchase an investment property.
Does the property make sense to invest in?
Consider the cost of the property and your projected sales price as well as the finances you put into it. Will you come out on top? You should also consider the location and the needs of buyers in that area. Near a college? You’re probably looking at renters. In a great school system? Think about families.
How does your property compare?
In it’s current state, how does it compare to those similar size properties in the area? What about it’s future state- how will it measure up? If most of the homes have granite countertops you probably don’t want to put in laminate. Likewise, if most of the homes have 4 bedrooms, you probably don’t want to convert a bedroom into a closet.
The surroundings
We mentioned the school district before but think about the neighborhood. How is it viewed and what type of people live there? Is there a lot or a little crime? Is the job market on the upswing? People are always looking at the amenities – how are the parks? Close by? Public transportation? Gyms, malls, movie theatres, restaurants and more – these all can be important to homebuyers.
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