You’ve just purchased your first property to renovate. How can you capitalize on your first investment property? I welcome back guest blogger and Author, Jessica Brody, who shares some tips with us on how to do so. Enjoy!
Whether your first investment property will be a rental or a flip, your goal is to walk away with more money than you put into it. But how? It starts with managing your budget but also includes understanding which upgrades make a space more desirable. Today, Cleveland Appraisal Blog shares a few tips for first-time investors.
Decide on How to Proceed
When you’re about to buy your first real property outside of your primary residence, you should know whether you’re going into it with the intention of renting or if you want to flip and make an immediate profit. There are pros and cons to each. On one hand, flipping houses is stressful but it’s also rewarding and profitable. On the other, renting gives you a monthly income stream, though there may be times when you struggle to keep the property occupied.
Determine How Much You Can Afford
Another crucial step is to figure out how much you can afford. Keep in mind that investment homebuyers will be required to put down a minimum of 15% to secure financing, according to Lending Tree. This means on a $250,000 property, you’ll have to have a minimum of $37,500 in cash for the banks to even consider a loan. You may also have to prove that you have enough income to cover the mortgage on all properties that you own. You can use a mortgage calculator to get a better idea of what you can afford based on the purchase amount and down payment.
Let the Renovations Begin!
When you’re figuring out how much money you can put into your property, don’t forget to calculate renovations. This should include repairing any structural damage or major systems before you think about design. Next, look at your space. If your home has an unfinished basement, you might be able to convert this to a living, meditation, or exercise room for somewhere in the ballpark of $17,459 – you can go up much higher, but an economic renovation should fall somewhere in that range.
If you don’t have a huge budget, you can use less expensive materials and do some of the work yourself, although using a contractor will result in better quality and fewer issues. A few things you can do without calling in a professional include painting or ripping out old carpet to expose hardwood floors, which are easier to clean.
Are You Cut Out to Be a Landlord?
Owning rental properties is a huge responsibility. Money Under 30 explains that there are many responsibilities and time obligations that go along with being a landlord. But, if you don’t mind the work, which includes rolling up your sleeves for simple repairs, chasing tenants for late rents, and paying an additional 25% insurance premium than you would on your primary residence, then buying your first rental home as a recurrent source of income might be a smart idea. This is especially the case if your goal is to break into real estate.
Form a Business Structure
When you run a business, and owning rental property is a business, you’re almost always better off forming a legal business structure. One simple option is to file as an LLC. This can give you some tax advantages, depending on where you are. You can also begin to build credit for your business, which can be beneficial if your personal credit isn’t perfect. Plus, business formation can be quickly completed online with a formation service.
After that, the next step is to protect your investment by looking into a home warranty. There are a lot of options so do your homework and decide whether a home warranty will pencil out. Especially if the inspector had any words of caution regarding appliances in the home, investing in a home warranty now could end up saving you a bundle down the road – especially if that AC cashes out in the middle of a blistering summer.
The days between closing and renting or selling your first investment property are stressful and exciting all at once. Remember, it won’t necessarily be easy, but real estate almost always appreciates, and starting your own business as a real estate investor can give you the financial freedom to live life on your terms.
Image via Pexels
I always appreciate Jessica’s articles! I hope you enjoyed her tips on purchasing your first investment property. A big thank you to Jessica for writing this article for the Cleveland Appraisal Blog and a big thank you to you for being here to read it!
Have you ever wondered how Wall Street got its name? This week, I leave you with the answer in this video. I found it interesting!
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Here are some links to other articles I’ve enjoyed recently! I hope you will also…
6 Essential Phrases to Guide Sellers to Success During the Pricing Conversation – The Walkthrough | HomeLight’s Real Estate Podcast
6 Things To Consider When Comparing Your Home To Recent Neighborhood Sales – Birmingham Appraisal Blog
Opendoor is struggling in Sacramento – Sacramento Appraisal Blog
Fannie Mae and the Cost Approach – APPRAISAL TODAY
For my readers in the CLE area… here are some articles related to news in our local area. I hope you enjoy these also…
the Hermit Club: More than a century of devotion to the amateur performing arts – Tom Matowitz of Fresh Water Cleveland
Metroparks Trail Challenge: Kayaking and other water fun on Hinckley Lake – Erin O’Brien of Fresh Water Cleveland