The following article was written by guest contributor, Katie Conroy:

Steps for Buying and Managing Your First Investment Property

The reason many cite for wanting to get into the world of property investment is simple: passive income. And there’s good reason to believe it: in 2016, the average gross yield was 9.4%, far higher than the 4% to 5% average stock market return. Still, there are plenty of potential pitfalls. Here are some steps the Flynn Team recommends you consider before diving in:

Get Your Finances in Order

Generally speaking, you want to be free of any financial debt or obligation aside from possibly a mortgage. That means student or car loans, credit card debt, and the like need to go.

Finance or Pay in Cash?

When you go to purchase your investment property, the most pressing decision is whether to pay in cash or finance the purchase. Some financial advisors, such as Dave Ramsey, say that under no circumstances should you go into debt to buy rental properties. Others, like Robert Kiyosaki, believe debt in this kind of circumstance is okay. A good compromise? Don’t begin until you've paid off all debt aside from a mortgage and have put approximately six months' worth of principal, interest, taxes, and insurance payments into a savings account.

Features of Profitable Properties

Knowing the community you’re thinking of investing in is key. Some aspects to consider include:

  • Livability and amenities: Is the location miles from the nearest grocery store? What about shopping, dining, and entertainment options? 

  • Vacancy rates: An area with a high vacancy rate is a definite red flag.

  • Property taxes: This is money that won't be recouped, so it’s important to know how much is going out each month.  

You might also find it helpful to consult an analysis of where the highest-grossing rental markets are located, such as ATTOM Data’s 2020 study. If you’re purchasing in Long Island, the Flynn Team will tell you everything you need to know about the area you’re interested in.

Multifamily versus Single-Family Homes

Single-family homes can be a good place to begin, since they’re generally more affordable than multi-family homes (those with multiple units under different ownership, such as condos and duplexes). There are also more of them. Historically, single-family homes appreciate more than multi-family buildings. On the other hand, if improvements are needed in a multi-family home and can greatly increase the income, you stand to increase the value of your multi-family property. Returns may also be greater.

Questions Every Property Investor Should Ask

Despite the potential income to be made from real estate investing, the process can also be expensive and take significant amounts of time. For these reasons, every potential landlord should ask themselves these questions: 

Am I Landlord Material?

Are you handy around the house? Does the idea of hands-on work, such as repairing fixtures or updating materials, sound feasible or torturous? 

Manage Yourself or Outsource? 

If your time is scarce, you might be thinking of turning to a property management company for help; however, the cost may not be feasible unless you have multiple income-producing properties. That’s because most companies ask for between an 8% and 12% share of the income.

Is Property Investing Right for You?

If you’re seriously considering investing in rental properties, take time to go through the steps needed, one at a time, as opposed to rushing in. Although property management can be lucrative, without careful planning it can also be challenging at best and financially disastrous at worst, so don’t rush the process. 

 

Katie Conroy is a writer at advicemine.com, the opinions and or advice contained in this article are hers and not those of the Flynn Team, or any of its agents or employees.