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5 Considerations When Buying Investment Property

Posted by Ken Meyer on Tue, Dec 18, 2012

buying invetment property

Buying a piece of investment property is a major decision. When you buy the right property the right way, it can generate very healthy returns. On the other hand, recent history gives us ample examples of what happens when you buy the wrong property the wrong way. Here are five considerations to keep in mind that should help make your investment both profitable and successful:

1.You make your money when you buy. If you buy your property at the right price, your worse case scenario is that you sell it to someone else at the same low price and every other scenario leads to you making money. If you overpay, the only way that you can break even is in a best-case scenario, otherwise, you're almost guaranteed to lose money.

2.Interpreting comps is an art, not a science. When you're looking at a piece of investment property, it is a very good idea to compare it to other comparable properties that have recently sold. When you make this comparison, realize that no two properties are truly comparable. As such, the comps will not always be a perfect predictor of what your property is worth.

3.Know the cost of inaction. It's easy to calculate how much you can make on investment property. When you're looking at a deal, and you're not sure that you can make as much as you'd like on it, calculate what it will cost you to leave your money sitting in the bank. In many cases, especially with investments that you can quickly turn, you do much better to make the investment even at a lower rate than you'd like than to leave your money dormant.

4.Work with the right people, not the people you know. In today's dynamic environment, the people that you have done business with in the past might not be the right people to work with anymore. If your broker isn't showing you the right properties anymore, try a different one and if your lender isn't active, look into a new lender or consider aligning yourself with a private money lender.

5. Have an exit strategy. When you buy a piece of investment property, you should always have a plan for how you will get out of it and move on to your next property. If you don't see a clear exit strategy, the property might not be worth buying in the first place.


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