As the housing market improves, investors turn to property as an investment strategy. Investing in real estate has definite advantages over other types of investment. Real Estate investment affords you the opportunity to enjoy a positive cash flow while creating equity in your property. It also shelters your gains from state and federal income tax.
Before you consider purchasing investment property in Boise, it is prudent to do some research to avoid making some common real estate investment mistakes.
Consider the Metrics
When you consider a property for investment, evaluate its potential to generate wealth. Consider factors such as vacancy rates, where local residents are employed, historical growth trends, population growth and demographics. Be aware of potential risks, like a major employer cutting back on jobs in the neighborhood. Identify whether it is young professionals, families, or retirees that are searching for a home in the community, then purchase the type of home they may be interested in renting.
Conduct a Rent Survey
Determine how much rent you need to collect so your investment property works for you. Conduct a careful rent survey to determine if the property has realistic potential. Look at comparable properties in the neighborhood and learn how much they are currently charging for rent. Then see if there is enough demand for rental units like the property you are considering by surveying current occupancy rates.
Have the Property Inspected
Take a walk through the property to see if you notice any potential problems. Are the windows energy efficient? Has the roof recently been replaced? Are the appliances in good condition? Does the basement have a musty odor? You will also need to determine whether the electrical and plumbing systems meet local building codes. Both the inside and the outside of the property need to be carefully checked. It is advantageous to enlist the services of a licensed building inspector. A building inspector can evaluate all necessary aspects of the property, both inside and out, and provide you with a detailed report to inform you of the necessary upgrades and repairs needed now and in the future. Hiring a licensed building inspector can save you a lot of time, headaches and money in the future.
Assemble a Team
Successful real estate investors have an experienced team of professionals working with them to support their business. Include in your repertoire; a good real estate agent familiar with the local market, an honest appraiser capable of providing a fair evaluation of properties you are interested in, a real estate attorney, and a lender that you have confidence in that can arrange financing for you and your prospective buyers. Your rental property will require routine maintenance, repairs and even remodeling. An electrician, a plumber, a painter, a HVAC contractor and others professionals also be required . Another option to consider could be to enlist a property management company to take care of your rental property for you.
Judge Cash Flow Properly
When purchasing an investment property all the necessary maintenance, repairs and renovation costs need to be considered. Contingency funds should be put aside in case costs run over. You may also consider hiring a professional property manager to take care of the property. If you chose this option, remember to include property management fees when calculating your cash flow. All expenses need to be accounted for. Arrange to interview property managers in advance to familiarize yourself with their services and fees.
Have an Exit Strategy
Investing in real estate is a great way to build passive income and increase cash flow, but buying is only one part of investing. It is very important that when you purchase a new rental property, that you think about the future and how you may need to exit or sell your rental property. You may have to sell in a hurry because of a personal emergency, or decide that being a landlord is just not for you, or you are ready to move on to bigger and better investments. Whatever the reason, not thinking about the future can cause you to lose money when you try to get out of the landlord business. It would be a wise decision to think about how you may have to exit a rental property some day and put this in consideration when purchasing a new rental property.
Establish Your Options
You prepared an exit strategy, but it is not working out as you planned. The market for real estate is stagnant just at the time you were planning to sell, and the local rental market has an abundance of properties available to rent at the same time. You will be glad you planned your options before purchasing your rental property. If the property isn’t selling and you can’t get the cash flow you expected in rent, you might offer a buyer a lease-purchase deal. You can try the wholesale option and sell the property to another investor, even though it will be at a price that is below market. You may make a less of a profit, but selling at a critical time will allow you to limit your losses in monthly carrying costs.
By using these tips as a guideline you can go a long way in preventing unnecessary costs for rental property investors in Boise. If you would like help buying an investment property in Boise contact us today!