When purchasing the first investment property, several variables need consideration, with the initial step in the process being to research while accumulating a down payment. A good search will include looking into housing prices, locations and checking into the pre-approval processes.
Taking that first step is huge for any investor as it likely was for mogul Yiannakis Polycarpou who is now massively successful in the industry. Properties are among the most considerable assets a person can own, but as time passes and with adequate effort, an investor can earn a generous passive income.
Before you reach the level of a mogul or establish an empire of your own, you must learn the fundamentals, including finding the ideal property, obtaining a mortgage, filling the buildings, essential aspects of achieving goals as an investor.
There are comparable when investing in properties to buying a primary residence but with some significant differences. Let us check out a few steps to guide you through the first purchase a bit more smoothly.
Purchasing an investment property is an ambitious undertaking that many enter, intending to achieve massive success comparable to moguls like Yiannakis Polycarpou, a shrewd investor with the capacity to recognize lucrative properties. Of course, not many entering the industry will fall into that class.
Many will struggle to meet goals as the role requires a distinct effort and investment of time that only comes when you possess a certain level of passion for the “game,” if you will. It is most certainly not something for those “faint of heart.”
Investments are risky, but property investments are among the riskiest, typically above the stock market. In the beginning, you will be at the mercy of tenants who can turn your investment upside down. But where there is a great risk, often you’ll find a more significant reward. A property investor has greater influence and somewhat more control over their assets than someone owning stocks.
Let us look at the steps in the process of obtaining your first property.
When searching for the first property to purchase, a few variables need to come into play. First, the fewer maintenance requirements for the building, the better. It is wise to avoid a fixer-upper and ensure the building has paying tenants.
New investors have the misperception that fixer-uppers are the way to go with a first property. You could end up not only sinking all your profits into the “money pit” but some of your own funds unless you have extensive talent in-home repair or a friend who has.
The problem then becomes having the time to manage these duties and more pressing responsibilities making it more sensible to avoid the fixer-upper.
Not only do you want to ensure you have paying tenants in the building but that these are responsible, quality tenants. The best way to tell these in a drive-by situation is by looking at the surrounding areas of the properties, the general care, and upkeep. That will also let you know which units are empty.
When calculating the “rent-to-value” ratio, those seasoned in the industry typically consider the “1% rule,” indicating a rental rate at roughly 1% of the property’s purchase price, which would be $1000 for a $100,000 property minimum.
Some investors will go lower depending on the location and rental prices for properties in the surrounding area; others might go a bit higher. Look here for guidance on calculating the value of investment properties.
For a new investor buying the first property, you might not be considering your skills as a potential landlord or property manager. It is a time-intensive and often overwhelming responsibility for which many investors often burn out, eventually giving up and selling their entire property portfolio.
It does not work well if you have other responsibilities taking you away from the property throughout the day.
The alternative is employing the services of a management company. These businesses will handle all facets of the properties, including collecting rents, interviewing new tenants, evictions, keeping track of expenses in a package that you can then turn in for taxes.
Income taxes will be due on investment properties. Fortunately, there are also benefits like a broad range of deductions whether you need to drive to the building, pay for maintenance. That’s a perk of management services; they maintain these records, adding to why their cost is worth the value.
There are a lot of intricacies that go into investing in real estate, making the goal of achieving mogul status like that of Yiannakis Polycarpou ambitious for the average investor.
That’s not saying it’s impossible, especially for someone with drive and passion. It’s simply a matter of challenging yourself.