Deciding to buy investment property is one of the best decisions you will ever make for your future. However, it isn't something you can decide to do one day and then rush out and do the next. There is a process that you have to learn and lots of information to digest. If you think you have done that already and you are now prepared to go out and make your first purchase, here are five questions to ask that will help you to prepare.
What type of property are you interested in? Are you interested in a duplex, multi-unit complex, or perhaps just a single family home? Are you interested in commercial real estate? What about undeveloped land? How you answer this question will determine other things that you do later, such as how you decide to actually pay for the property. It is also best to choose one direction to pursue so you don't go on wild goose chases and so your team knows what they need to clue you in on.
Do you have a specific area that you are interested in? Do you want to invest in the city where you live? If not, what part of the nation are you interested in? The Internet is your best tool for determining what area of the country you would like to put your time and money into. Ken McElroy, author of “The ABCs of Real Estate Investing,” calls this Level I research. Later, when you have determined a part of the country and a city in which to look, you will need to decide on a neighborhood. You will discover that during McElroy's Level II and Level III research.
Do you have a financing strategy? The type of investment property you are looking for (as well as your existing equity) will determine how you can make your purchase. If it is a small property such as a house, you may choose to pay for it outright. However, even if you don't have the money to pay for it, if it is a piece of property that has made money in the past, the bank will probably give you a loan. They know that they will make money on the deal regardless of what happens to your investment. If you are looking at a large property that you can't afford outright, you will probably be able to get partners or other investors to contribute.
Is my team in place? It's just too hard to be successful at this without a good team. This is simply because there is so much work, and so many different types of expertise needed, that you simply can't do it all. There is not enough time for you to become proficient enough with real estate law and accounting, plus broker your own deals and manage your own properties. It is necessary to delegate. That is why McElroy recommends you start with an attorney, an accountant, a broker and a property manager. After that, you may also need appraisers, tax consultants, a surveyor, a structural engineer, an architect, an estate planner and more.
How much do you have to spend on repairs? This is very important. Knowing this will help you choose the areas of town to look around in because some areas may be full of old buildings or some newer buildings may actually be in need of a lot of upgrades. You will have to know what you are getting yourself into and whether you can handle it.
This is by no means a complete list of questions. Once you embark on your investment property adventure, you will discover a never-ending list that you will need to pay attention to. But these will get you started on the path to asking yourself the best questions. Sometimes asking the right questions is more important than the answers themselves.
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