December 17, 2020 at 10:00am | Preferred Advisors Team
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A Beginner’s Guide to Smart Property Investments

For many people, real estate is a wise investment that offers a good return. However, it’s not without its risks. As a landlord, you’re faced with the challenge of finding good tenants, keeping the property in top shape and getting enough money back on your investment. There are many pitfalls along the way, but by choosing your steps carefully, you can set yourself up for success as a real estate investor.

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Check Your Finances

You can’t invest in real estate until your finances are in order. This means your credit needs to be healthy, and you need to have enough saved up for a down payment. There’s no standard credit requirement for buying an investment property, and as MillionAcres explains, the criteria vary depending on the type of financing you choose.
Regardless of your credit, most experts agree you need to make a 20 percent down payment. Keep in mind that as an investor, you usually can’t qualify for down payment assistance because you won’t be living in the property yourself.

Make It Legal

Starting your own rental property business is no small task, but don't let that stop you - it can be done! One critical part of this process is setting up a legal business entity. If you haven't set up a business entity before, the first step is researching the ins and outs of different business structure types to determine which best suits your business. Many rental property owners agree that a limited liability company (LLC) works best because it can be used for property purchases, and any accumulated debts belong to the business and the business alone. Setting up a Kansas LLC can be done in a few simple steps, but you may feel most at ease working with a company that can guide you through the process.

Avoid Major Renovations

While a fixer-upper might be listed at a drastically reduced rate, it’s not necessarily a wise choice for your first investment. A good investment property will allow you to recoup your losses as soon as possible.
If you need to sink thousands of dollars into replacing the roof or gutting a kitchen, you might not see any profit or quite some time. Flipping a house or closing a deal on an untouchable property may be an easier task once you’ve already got one or two other investment properties under your belt with more rental income.

Consider the Local Market

The whole point of buying an investment property is that it can create a steady flow of passive income. This means you’ll want to consider what the rental rate is for similar properties in the area before you invest. If the mortgage is too high compared to the average rental rate for the area, you may lose money on your investment. With that in mind, learning how to calculate your cash flow is paramount.

Researching the local market is also important so you know what you’re getting into. By keeping an eye on several neighborhoods, you can spot the best opportunities. Price is important, but it isn’t the only factor you should consider when choosing a property. Renters care about things like good schools, low crime rates and a healthy job market. By being mindful of these factors, you can avoid picking a property in an area that won’t attract renters. 

Make a Plan for Management

A landlord’s responsibilities go far beyond taking rent checks each month. You also have to handle anything that might go wrong with the property, such as leaky sinks, cosmetic damage or the water heater going out. Not only do these fixes take some skills, but they also require your time.
If you aren’t handy or have no spare time, you’ll need a plan for managing repairs some other way. You may find it works best to simply hire a handyman to take care of the work for you.
Owning an investment property comes with more than a few headaches, but if you navigate the process right, you can get great results from your hard work. Once you get the basics down, you can often work your way toward owning multiple properties for an even greater return on your investments.

Tina Martin of Ideaspired.


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