Before buying your first investment property, there are three key considerations that will improve your odds of successfully building a robust and cash flowing real estate portfolio. These three key tips for first-time investment property buyers are:
Make sure your personal debts are manageable.
One of the major advantages of real estate investing is the availability of debt secured by the property you’re buying. If you speak with a savvy real estate investor about debt and equity, they often prefer taking out as much debt as possible to minimize their equity and improve their returns.
Although debt is ubiquitous in real estate investing and a key driver of wealth creation, personal debt is more constraining. Acquiring an investment property obligates you to cover payments in the event that the property’s cash flows don’t fully cover outgoings such as mortgage repayments, maintenance, and capex. As such, unanticipated vacancies or other issues reducing cash flow (such as the COVID-19 eviction moratorium in some areas) can place the investor under strain. If the investor is already stretched in making personal debt repayments such as student loans, car loans, or any other personal loans, then they may have difficulty continuing to service all debt obligations should the investment property’s cash flows become constrained.
As such, ensure that you’re financially sound prior to purchasing an investment property. This means your personal debts are manageable and won’t contribute to cash flow issues in the future. Investors can mitigate these concerns by maintaining a reserve or cash buffer account.
Ensure you have a sufficient down payment.
Depending on the investment property and your specific circumstances, you may be required to make a down payment as low as 3% or as high as 30% or more. Residential real estate offers the lowest down payment loans and thus is the most popular asset class among investors. Deciding which asset class you intend to purchase will allow you to identify the amount required for the down payment and to budget and save accordingly.
Identify a strong team.
When buying your first investment property, having the backing of a strong team is paramount. Most successful real estate investors rely on a good banker, real estate agent, and lawyer. These individuals all serve different roles and provide diverse perspectives on potential properties. In many cases, if you can identify one of the three, that person can then help to identify the remaining team members.
Real Estate Lawyers in Rhode Island, Massachusetts, and Connecticut
First-time investors are always in a rush to buy their first investment property. Don’t jeopardize your wealth by buying before you’re ready.
At Palumbo Law, we are not just real estate lawyers, but investors too. We understand both the legal and commercial implications of an investment and can ensure that you’re financially prepared to buy and help assemble the team that will accelerate your real estate investment path. Our lawyers represent real estate investors and businesses in all matters of real estate, including development and acquisition, leasing and dispute resolution, and sales and 1031 exchanges. If you have questions relating to real estate in Rhode Island, Massachusetts, or Connecticut, please contact our office to set up a consultation or complete the contact form.