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Investing in real estate can be a great way to generate passive income. However, the learning curve can be steep. That said, it’s all completely doable when you know what you’re signing up for. Below, real estate pro John Trapaso Jr offers some insight that can help you buy and manage your first property.
1. Get Pre-Approved for Financing
The first step you must take is to get pre-approved for financing. Getting pre-approved ensures that when you find the property you want, you won't have to risk losing it to another buyer while you wait to get approved for a loan.
2. Identify a Profitable Investment
Before you make an offer on a property, calculate your expected return on investment. To do this, you need to estimate how much rental income the property will generate in a year and then subtract out your insurance, taxes, repair costs, property management fees and any other expenses you have. Don't forget to factor in potential vacancy periods. Once you have this figure, divide it by the purchase price of the property to determine your ROI.
3. Know What Features To Look For
A profitable rental property should be low maintenance, have a good rent-to-value ratio and have the potential to be rented most of the time. Avoid purchasing a home that needs a lot of repairs unless you are a skilled handyman and know you can make the repairs inexpensively. Otherwise, all your profits could go toward trying to fix the house you just bought.
Research the vacancy rates of rental properties in the area. Make sure you can charge enough rent to make the investment profitable. According to industry experts, rent of at least 1% of the purchase price is a good rule of thumb. If houses in the area are renting for much less than this, you may need to move on. Finally, make sure you are paying a fair price by getting an appraisal done.
4. Consider Hiring a Property Manager
Being a landlord can be a time-consuming and stressful job. Hiring a property management company to handle arranging repairs, collecting rent, and finding tenants will reduce your profit but can take a lot of the stress out of owning rental property. It also frees you up to focus on identifying the next investment you want to buy.
5. Research Home Warranties
One of the major expenses that comes with owning rental property is fixing things that break. A home warranty can provide financial protection by covering the cost of repairing home systems or broken appliances. Before you purchase a warranty, review the home inspection report for red flags. Anything that stands out, like a troublesome roof, an older furnace or even older wiring, could help you find out if it’s worth it to buy a home warranty. Most of the time, it is.
6. Track Your Expenses
You must pay taxes on the income you make from your rental properties. However, you only have to pay taxes on your profit, which is your income less your expenses. Keep track of what you pay for a property management company, what you spend on repairs, the interest you pay on your mortgage and other expenses. If you are using a property management company, it can help you do this.
A rental property is a big investment. It will take some time and effort for you to learn how to identify good investments and manage them well. But when you focus on finding a good investment, working with a property manager and protecting your investment, you’ll be in a better position to purchase your first investment property and manage it profitably.
All real estate is local. In order to make confident real estate decisions, we believe it is important for you to have timely and neighborhood-specific information. If you would like more information about buying a home in NC, our experts at EXP Realty are here to help. Contact us today to speak with a EXP agent about buying homes or land in North Carolina.