Things To Know When Buying Investment Property As A New Investor

A new investor once asked me, “Ed how do I decide what to buy?” I asked him what kind of real estate investing he was interested in. He told me, “Rental properties, of course.”
  
When delving into the realm of rental property, acquiring education is paramount, lest one incurs costly lessons. Most individuals prefer pursuits other than landlord responsibilities. Late-night emergencies, like a burst hot water tank, are not uncommon for landlords. However, I refrained from inundating him with such scenarios, not wishing to dissuade him from exploring the potential of revenue properties. Instead, I aimed to impart the importance of acquiring valuable skills. Many dive into this venture only to have unfavorable or costly experiences, prompting a swift exit.

The next question I asked him was, “How do you value your time?  Do you have the spare time to manage your properties?"

Property management companies abound, offering to handle landlord duties for a fee, typically ranging from 7 to 15% of gross rental income. Initially, experiencing this role firsthand can be beneficial for new investors. With accrued experience and financial stability, they can evaluate the performance of a property manager effectively.

Location plays a pivotal role, consuming significant commuting time. Proximity facilitates property management and tenant showcasing. Optimal locations boast stability and proximity to amenities, such as shopping centers, schools, churches, and transportation options.

When purchasing investment properties, assessing their condition is imperative. Continuous investment for repairs can erode rental income. I caution against fixer-uppers unless one possesses experience with such properties. Properties in good condition, essentially turnkey, often yield better results, mitigating stress from unexpected repairs and negative cash flow situations.

Before committing to any real estate purchase, ensuring positive cash flow is vital. In an increasingly expensive market, finding a lucrative rental property can be challenging. I favor properties with suites and the appropriate zoning. It is important to find out if the rental property of interest with a suite had permits during its construction.

Seek out properties that are more likely to generate a return. Even though some properties may be a favorable price, they may trap you into a situation where you are barely breaking even. Plan meticulously, setting aside 3% of property income for emergencies, minor repairs, and sudden vacancies. Establish a benchmark, such as a minimum of $300 post-expenses. Subsequently, explore avenues to augment this figure, perhaps by adding a bedroom to increase monthly income.

Impress tenants by taking good care of the property and keeping up with the maintenance and any repairs needed. Treat them as assets, fostering longer-term tenancy through respectful interaction. Dealing with people can be daunting, but embodying the treatment you desire fosters tenant loyalty.

For questions about real estate, contact Ed Black today at (403) 830-8510.

Ed Black
REALTOR®