What factors should I consider before buying investment property?

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Answered by: Desmond, An Expert in the Investing in Real Estate Category
What factors should I consider before buying an investment property?

You've recently come into a large sum of money, and now everyone is offering their investment advice.

Some suggest mutual funds or money market accounts, others suggest the stock market. It all seems confusing, so you

decide to do some research. Your research reveals that the banks do not pay much interest on deposits, there is

volatility in the stock market for individual stocks, and you don't have the time to monitor a balanced mutual fund

portfolio. You seem to recall some late night infomercial talking about buying investment property. It's at that moment

you decide to go into an entirely different direction. You decide to buy an investment property, then you ask yourself,

what factors should I consider before buying an investment property?.

Thinking your decision may have been a bit hasty, and questioning whether you're making the correct investment decision,

you now decide to seek the professional advice of a Realtor. Which is really a good first step. You go online and search for

a local Realtor. It's important to find an experience local Realtor whose specialty is working with buyers, and

particularly investors. It's always a good idea to interview a several Realtor to get an idea of their temperament,

professionalism and knowledge. You find the Realtor you like, call and decide to work together.

At the meeting you brief the Realtor about the lump sum and your decision to buy investment property. You them emphasize

the question of what factors should I consider before buying an investment property? The Realtor say location

is most important, because if the property is in a good location, it will always be attractive to potential tenants,

and if you decide to sell the property, the area will be attractive to potential buyers, such as investors and homeowners.

Next, cash flow is very important. It's not enough that the monthly cash flow cover the mortgage payments, but the cash flow

should also cover the homeowners insurance, property taxes, and any association dues. An investor should also consider a

reserve account for unforeseen maintenance, such as the replacement of a water heater or a garbage disposal. The strong

reserve account will help cover the mortgage and other expenses if the property becomes vacant.

There are other factors to consider before buying an investment property, such as, should you invest in residential

property or commercial property? Residential property is recognized as 1-4 units and includes condominiums and town homes.

Commercial properties includes any residential property with 5 units or more. Additionally, commercial property is any

property that generates an income, such as manufacturing, industrial or specialty properties like theaters or restaurants.

Other factors to consider, are you seeking a flip opportunity and investing for short gain, or are you seeking cash flow

and capital appreciation, therefore investing for the long-term? The Realtor advises you to consider running a credit

check on any prospective tenants, and verify the prospective tenant's income and ability to pay. The Realtor lets you

know that some investors manage their own investment, and some investors choose to use the services of a property

management company. These are all questions to be answered, along with the question of location, cash flow and reserves.

In answer to the question, what factors should I consider before buying investment property? All these factors

needs to be considered: location, cash flow, reserve account, long-term or short-term investment, residential or commercial property, credit worthiness of tenant and ability to pay. With these factors considered and evaluated, you're now ready to purchase an investment property.

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