Questions To Ask When Choosing Your First Investment Property

From the budget to the area, to the home itself, there are many different factors newbie property investors have to chew over when they’re looking to take their first steps into the real estate market.

While investing in property is generally considered a safe asset class, making money from it is never guaranteed. Your success as a property investor depends on your goals and a few obvious fundamentals like buying the right property in the first place.

However what is the ‘right’ property? There really is no such thing, as what’s right for one buyer is not a good option for another due to circumstances including location, price, funding, property type, rent, and capital gain prospects. In this article, we cover how to identify the right property for your first investment.

Here are a few questions to ask yourself when looking for that first investment property.

What Can You Afford?

Before you even consider talking to a real estate agent, you need to determine exactly what you can afford to spend.

Naturally, you’ll start with a calculation of your monthly mortgage payments, but you need to go much further than that. Think about the current cost of a mortgage, and factor in the extra cost when interest rates go up. Next, you need to think about various additional costs, such as the tax on your rental income, insurance, agent’s fees, inspection fees, and ongoing maintenance.

Finally, formulate a plan of what to do if you run into any issues with tenants, like those who refuse to pay their rent for one or more months. It will take time to either come to an agreement with the tenant or execute legal action. You need to have a safety net in place for paying the bills during these tough periods.

Where Will You Target?

Having established a firm budget, you need to think about the area where you’re going to start scoping homes for sale. There are two main factors to think about here. First of all, the ideal location of your first investment property, and secondly, the practicalities of actually owning one there.

If you’re planning to do a lot of the maintenance and servicing yourself, you should aim to buy something that’s relatively close to your actual residence. Fail to do this, and it will turn out to be impractical. You’ll also be more familiar with the local area and may already have some idea of where people tend to rent. In the best-case scenario, you’ll be able to secure a place that’s appealing to tenants for a few specific reasons. It might be near a school or college, transport links, and so on.

What Will You Buy?

Having established the ideal renter, you’ll be able to hone in on the right kind of property they’d want to rent that also matches your needs. If your ideal tenants are students, for example, they’ll want a house with several bedrooms so that they can rent it with some co-eds. If they’re young professionals just starting out on their career, a flat with one or two bedrooms may be more fitting. Always make a point of matching the property to the tenants you’re targeting.

When you’re new to property investment, it can be easy to be naturally magnetized to the kinds of properties you’d like to live in yourself. Be aware of this emotional response , as it can actually lead to you repelling good tenants.

Summary

Investing in real estate requires knowledge of your finances, the location you wish to buy in, and the ability to spot a great deal when you see it. Do all the groundwork on your requirements before looking at properties for sale. Remember to stay emotionally removed from your purchase decisions and instead of choosing from the heart, use your head. The numbers never lie, so if the rental income will exceed your outgoings and leave you with some profit so you can service the property’s maintenance requirements plus the property has capital gain potential then you’re onto a winner.