Even for a seasoned investor, the process of purchasing an investment property can be intimidating because it typically requires time, effort, and huge capital investment. However, if you get the process right, you’re likely to reap huge financial rewards including passive income, equity gains, and tax breaks, according to an article published by CNBC.
Before Preparing to Buy an Investment Property
Even before you set out preparing, there are a few factors that you must be well aware of:
- Know the costs involved and judge the affordability of the property. Here, affordability relates to both time and money involved in the planning, preparation and ultimate execution of the property purchase.
- Know your credit standing and set your financial records in order.
- Understand the added amount of responsibility that entails owning and maintaining a property.
Steps to Buying an Investment Property
Once you are certain of being able to buy and maintain an investment property, here are some steps you may want to follow:
- Assemble Your Team
The process of buying an investment property typically involves lots of moving parts. Regardless of whether you’re experienced or a first-time investor, your success will largely hinge on working with experts in this space, including:
- commercial lender
- commercial real estate agent
- commercial real estate attorney
- tax attorney
- accountant
Before you embark on shopping for investment properties, you should assemble your team of domain experts. While hiring such experts may be expensive, it will allow you to find solutions quickly when problems and questions arise.
- Decide on the Kind of Property You Want to Buy
You should be clear on your real estate investment goals. For instance, do you want to invest in a multi-tenant property or a single-tenant property? Do you prefer rental properties that are relatively easy to maintain such as condos? What type of property aligns with your investment goals and lifestyle?
Other Important Factors to Consider:
- Price – You should think of a price point that’s ideal for you. Remember, investment properties typically require larger down payments than owner-occupied properties. While you may only need to put down 3% for a home that you intend to live in, you’ll need at least a 20% to 30% or more down payment for an investment property.
- Location – For commercial real estate, location is vital. According to property experts, your property search should be centered in areas that are growing rather than declining. A locale with a growing population or which is being revitalized offers potential investment opportunities.
- Secure Financing
There are various ways to finance the purchase of incomeproperties. The main financing options include:
- Conventional financing – Conventional financing refers to a mortgage that you can get from a bank that’s based on your personal qualifications like your credit score, tax returns, assets, employment, and debts.
- Asset-based loans -If conventional loans don’t suit you, asset-based loans are a good alternative. As you might guess from the name, the main loan qualification for asset-based loans is the value of the underlying investment property and not the borrower’s qualifications.
- Find an Ideal Property and Make an Offer
Once you have your team of experts, you’re clear on your investment and financing options, you should proceed to the fun part, which is shopping for an ideal property. Your commercial real estate agent will help you find a property that meets your criterion. Once you find a property that suits you, you should make an offer. Your commercial real estate agent will help draft the offer, and your attorney will review it before you submit it. Ensure that your offer has contingency clauses that will allow you to walk away from the deal if certain things go wrong (like inspection issues) during the due diligence period.
If you want to invest in real estate, you should involve professionals and an accommodating lender in the purchase process. Do you have any additional questions about how commercial real estate loans work in California? At Fidelity Mortgage Lenders, we’re here to help. To get started, contact us or give us a call at 800-752-9533.
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