Guest Post: Can You Afford To Purchase An Investment Property?

My husband and I buy rental homes and have been looking to buy an additional one for the last few months.  Every time we find one that we are interested in, someone comes along and scoops it out from under us.  Our long term goal is to own enough properties where we can live off the monthly rental income, but we do not want to buy an additional home bad enough to overpay for one right now.  We are waiting for the “right home” to come along at the “right price” and then we will be happy to purchase it.  So far all our of tenants have taken great care of our rental homes and have remained in our homes for the last 4 years.  We have a great property manager who takes care of our homes, and finds great tenants for our properties.  I am totally for purchasing investment properties and recommend that you think of this investment option if you are looking for investment ideas.

rental houseThis is an example of the type of rental home that my husband and I would purchase as a real estate investment property.

The following is a guest post that I thought would be of use to you if you are thinking of purchasing investment properties – Good luck and enjoy!

Can You Afford To Purchase A Real Estate Investment Property?

A real estate investment asset is property you purchase and then manage, renovate, rent or sell – with the ultimate goal of making money. Before investing in the real estate sector, make sure you tick certain items off your checklist, paying special attention to things like the state of the economy, regulatory compliance, your personal financial situation, and the type of professional guidance needed to invest in a specific region or asset type.

Professional Guidance

To determine whether you can afford a real estate investment property, seek the guidance of someone well-versed in the subtleties of property investment. Professionals such as certified public accountants, investment bankers and mortgage counselors can offer valuable insight into what it takes to research, purchase and own investment property. Other specialists whose advice may prove to be useful include real estate attorneys, zoning-law experts, certified financial managers and financial advisers. Confiding in experts before making a purchase decision would help you avoid inadequate investment decisions that might turn out to be costly in the long run. For example, if you want to purchase a piece of land in a specific area, you may want to run that thought by a local zoning-law expert or real estate attorney. The expert might offer a different view, encouraging you instead to delay your purchase date because there is pending litigation surrounding the plot you’re interested in.

Financial Assessment

Assessing your financial condition is essential to knowing whether you can afford a real estate asset at the moment, or whether it is strategically wise to pay off existing debts before bringing new liabilities on your balance sheet. In a financial glossary, a balance sheet is the report listing things like assets, liabilities and personal equity. Assets represent your personal resources, ranging from mortgage-free property and cars to retirement accounts, certificates of deposit and money in current and checking accounts. Liabilities, also known as debts, include everything from student loans and car debts to outstanding amounts on credit cards. When you subtract all your debts from your total assets, you get net worth – or “owner’s equity,” as financial specialists often call it. Before you purchase a piece of property, make sure your net worth gives you enough leeway to take on more debt – unless you do not plan to finance the transaction and instead pay for the property in cash. Other key items that affect your net worth include personal earnings and expense levels – which are important, especially in terms of how much you would incur in interest charges, closing costs and bank fees during the period you hold an investment property.

Regulatory Compliance

Real estate investment may be heavily regulated, especially when it comes to property located in “keep out” or specific zoning areas. For example, if you want to buy a piece of investment property in an area that the government has declared off limits, it may be economically appropriate to know applicable rules beforehand. The last thing you want is to lose money because public officials cite eminent domain, seize and demolish your property, and compensate you unsatisfactorily – by sending you a check with an amount that is lower than the sum you originally disbursed for the property. “Eminent domain” means the government’s power to take private property for public use, after paying the property’s owner a fair remuneration.

The State of the Economy

Economic fluctuations also can affect the real estate sector, and before you invest in that industry, make sure you cover all the analytic angles of the property you are interested in. Analyze the local real estate industry, tying it to regional economic conditions and determining whether your target area is likely to experience economic success in the next few years, or whether financial tumult might be the norm in the foreseeable future. To become more familiar with the state of the economy, reach out to other real estate professionals or enroll in industry groups focusing on general investments. Sharing feedback with other potential real estate investors can deepen your knowledge of the industry. This shared experience, which may be impossible with a smaller or more homogeneous group of participants, may further stimulate discussions across the investor group as market conditions evolve.

Becky Flanigan is a former real estate professional with over 13 years of experience.  She gives practical and honest advice to getting an Oklahoma real estate license.  When she is not writing, she loves to be outdoors and travel with her husband and 3 beautiful girls.  Follow her on twitter @Becky_Flanigan

1 thought on “Guest Post: Can You Afford To Purchase An Investment Property?”

  1. In this economy the best that can be done would be wait for the right time to invest in the market. But then again the prices are so low now-a-days that its something that no one can resist to be very frank but banks are becoming really strict when it comes to mortgage even when u have the capacity to repay its not easy to get a mortgage.

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