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   HOW TO BUY AN INVESTMENT PROPERTY

Before we go into any depth on this topic, I want you to understand that buying investment property is a complex business decision.  You should study this subject in some depth before taking action, and you should seek professional help from your attorney, accountant, and real estate agent.  That said, it is always good to have a plan in mind before you start looking for help.



1. Choose the type of investment.  Vacant land, vacation rental homes and condos, rental houses, condominiums, apartment buildings, store fronts, commercial properties, industrial properties, mobile homes, mobile home parks, etc. each have varying degrees of risk and reward.  For someone just starting out, a rental house or small apartment building is probably the best choice.  They offer the opportunity for income on a regular basis, have shorter vacancies on average than commercial or industrial property, are less regulated than condominiums and mobile homes in most areas, and there are many places that you can get information and education on becoming a successful landlord in small residential properties.  It is a good place to start, and it is the investment type we will be concentrating on in this article.


2. Choose an area.  Look for an area that has a diverse economic base offering many employment opportunities.  After all, the tenants will need an income in order to reliably pay rent.  The area should offer good schools, shopping, and transportation. This is of little concern in resort areas where the majority of rentals will be for weekly, monthly or seasonal rentals. Ideally, it will be an easy drive from your residence so that you can keep an eye on your investment. 


Tip:  When you investigate an area, get copies of the local newspapers and the city newsletters for the last few years so that you will be aware of things that are happening that may affect the value of properties.  Changes in the laws, land use planning, zoning changes, and many other things can change the value of property.  Talk to people in the community to find out what issues are being discussed.  Talk to other investment property owners to find out how the community relates to landlords.  Due diligence in this search can save you a lot of time and money.


3. Choose a location within the community.  When buying an investment property, the three most important things are “location, location, location.”  Location within the community will determine the ease with which you rent or resell the property.  It will determine the price that you can command.  And, it will determine the quality of customers you attract.  It is one of the things about real estate that is unchangeable, so you have to choose right to start with.


4. Research property values and rents.  This information is available from real estate agents, as well as from a variety of other services in most areas.  You will want to call rental ads in the paper and talk to local landlords about what they are offering, how much they are charging, and what their experience is with the market.  Some of them may be open to selling their property and may even be willing to finance it, so be sure to ask.


5. List the criteria an investment will need to meet in order for you to be interested.  For instance, single family home with at least 3 bedrooms, 2 baths, and a 2 car garage which will rent for enough to cover the mortgage payment.  Taking the time to define your search ahead of time will keep you on track and shorten your time to success.


6. Find a competent real estate agent that is in the area, knowledgeable about investment property, and willing to work. 


7. Analyze the property.  When you find a potential property, gather all of the data that you need to determine the seller’s motivation, what the property will rent for, what the expenses will be, and who pays for what.  With apartments, it is imperative that you get all of the information the seller has to offer.  Then, when they are done providing information, it is your job to go check it all out. You want to make your offers based on actual rents and actual expenses, not sloppy or fictitious numbers.

8. Make an offer. Make your offer contingent on a review of all documents related to the property, a thorough inspection of all units by yourself and a professional inspector, and approval of the terms of your contract by your accountant and/or your attorney.