Deciding to invest in income property is a huge step. It’s often the culmination of hours of thought and research, as well as discussions with family members and co-investors. However, once you start scouring the market for houses for sale, you’ll quickly realize that making the decision to buy an investment property is just the first step in a long process.
There’s a lot to consider when it comes to buying an income property. As some of the top property managers in Windsor, we have a unique view of this situation, since we’ve been fortunate to help many of our clients in various phases of the real estate investment journey.
Along with our friends at the Dan Gemus Real Estate Team, we’ve put together a list of questions that every would-be real estate investor should ask themselves before they put a single dollar down.
Here’s everything you should consider when you’re looking at buying an investment property.
1. How much debt do you carry?
To get a mortgage, you’ll need to prove to a mortgage lender that you have an acceptable level of debt. Typically, lenders want to see a debt-to-income ratio of less than 36%, with no more than 28% of that amount going towards your mortgage. If you already have a mortgage that you’re paying off and want to add an additional one, you still need to make sure your debt-to-income ratio stays under 36%.
If adding an additional mortgage would put your debt-to-income ratio too high, focus on paying off existing debt, or find a way to bring in an additional income stream. With some concerted effort, lowering your debt-to-income ratio is definitely possible.
2. What location works for you?
Once you’re determined to invest, you’ll need to figure out what area works for you. Obviously, we’re biased: we think that the Windsor-Essex County region is a great place to purchase an income property.
However, if you choose to use a property manager, you can essentially purchase real estate anywhere that laws allow. If you have a person on the ground who can manage the day-to-day needs of your property, you’re free to make investments wherever the financial gains are greatest.
3. What ROI are you looking at?
Before you invest any money into a new property, make sure you know what kind of return you can expect. Some investment experts suggest that anything above a 6% return in your first year as a landlord is healthy, while other real estate investors are happy to put in more money initially if they can be assured of a higher ROI later on down the road.
Whether you’d like to build a slow and steady ROI or are content to wait for a larger sum down the road, there’s no wrong answer. You just need to know what to expect, so there are no surprises.
4. How much risk are you willing to live with?
Different income properties come with varying levels of risk. This includes everything from a lack of rental interest to a glut of real estate that lowers the value of your newly purchased property. Property taxes could go up, or you could find that your property needs a lot more work than expected before it can be rented. However, certain properties, like those that are newly built, smaller, or already filled with reliable tenants may be less risky.
To determine the right property, you need to first determine the level of risk you’re willing to tolerate, then work with your real estate agent to find a property that meets those needs.
5. Do you want to be a landlord?
If you aren’t going to flip your income property, the only other way to make money is to rent out your new investment property. You can either choose long-term tenants, or opt to make your new property a vacation rental and list it on sites like Airbnb and VRBO.
Even though rent payments are a passive and predictable way to gain an income, there are responsibilities that come along with being a landlord that many investors are not interested in taking on.
If you’re interested in the benefits of owning an income property without the risks or hassle of being a landlord, consider using a property management company. They can deal with the day-to-day management of your property, which includes finding tenants, collecting rent, and dealing with maintenance requests.
Want to Learn More About Property Management?
A great property management team can be the difference between having a second full-time job as a landlord, and being able to enjoy the benefits of your income property with less risk and less hassle.
Want to learn more how Goldmar Property Management supports real estate investors in the Windsor and Essex County area? Get in touch today! We love to speak to potential landlords, and have tons of resources on making the most of your real estate investment.