Should You Really Buy Investment Property?

Posted on: 3 May 2017

Passive income is the grand prize of income—money that you don't have to do anything (or that you have to do very little) for. Income from a rental is often seen by those who don't have investment properties as a lucrative type of passive income, and for the most part, it is. However, it's not completely passive; in fact, depending on how you handle it, a rental home could require a lot of attention from you, and it could be more work than you expected. If you are searching for investment real estate, consider these issues to help you further narrow down the type you should get. Holding investment real estate is a very good thing, but your agent needs to know what type will work best for you.

Prepare for Property Tax

Regular real estate costs cover more than just the mortgage and HOA fees. You must plan for property tax, assessments, and additional costs that you may incur for just holding the property. If you're currently a property owner in the same state, don't fall into the trap of assuming that your rental property will have the same costs as your residence property; sometimes the percentage rates can change for secondary residences. If you live out of state, ask your real estate agent about the potential fees and costs you need to cover in the state in which you're looking for property.

Who Will Manage It?

Are you planning to manage the property, or do you want a property management company to handle it? If you're going to manage it yourself but don't want to deal with a lot of calls, you may want to buy a condo in an apartment-style building because then the exterior will already be taken care of by the HOA's management company. If you don't mind having a management company take over the application and maintenance processes, a house is definitely an option.

How's Your Current Financial Situation?

How stable does your current financial situation look? If you're a first-time investor, try looking at smaller, less expensive properties first just so you can get that extra income stream going. As that shores up your monthly income, then you can look for more investment properties. Of course, if you've already got a very stable financial base, you may want to go for bigger properties.

Your real estate agent needs to know all this to help you find a property that fits your needs. When you and the agent search for properties, have an honest discussion about how different aspects would affect you so that you have a better chance of narrowing down the huge field of available properties out there.