When the housing market turns around, investors turn to property as an investment strategy. Investing in real estate has some advantages over other types of investment. You have the opportunity to enjoy a positive cash flow while creating equity in your property and sheltering your gains from state and federal income tax.
But before you buy investment property in Seattle, it pays to do your homework so you can avoid common real estate investment mistakes.
Consider the Metrics
When you look at a property for investment, think about its potential to generate wealth. Consider vacancy rates, where local residents are employed, historical growth trends, population growth and demographics. Look for red flags, like a major employer cutting back on jobs in the neighborhood. Predict who is likely to be looking for a home in the community – young professionals, families, or retirees – and purchase the type of home they may be interested in renting.
Conduct a Rent Survey
Do the math and determine how much rent you need to collect so your investment property works for you. Conduct a careful rent survey to discover if the property has realistic potential. Look at comparable properties in the neighborhood and learn how much they are currently charging for rent. Then see if there is enough demand for rental units like the property you are considering by surveying current occupancy rates.
Have the Property Inspected
Look over the property and take note of any problems you notice. Does the basement flood after a rain, or does it have a musty odor? Is the roof in good condition, and are the appliances in working order? You will also need to assess whether the electrical system meets local building codes and if the plumbing is up to par. Unless you are a professional, it pays to enlist the services of a qualified home inspector who can evaluate the home for structural and other problems. Hiring a pro can save you a lot of time, headaches and money down the road.
Assemble a Team
Successful real estate investors have an experienced team of professionals on their side to support their business. Find a good real estate agentwho knows the local market, an appraiser who can provide an honest evaluation of properties you are interested in, an attorney who specializes in real estate and a trusted lender who can provide financing for both you and your prospective buyers. Since buying a rental property means you will need to do routine maintenance, repairs and even remodeling, add an electrician, plumber, painter, HVAC contractor and others to your team. As an alternative, you can look to hire a property management company to do this for you.
Judge Cash Flow Properly
Investors need to take all the necessary maintenance, repairs and renovation costs into consideration when buying an investment property. You may want to allocate more than the estimates in case costs run over. If you are like many other investors in rental property, you may want to hire a professional property manager to take care of the property. Make sure to figure in property management fees when judging your cash flow so you will cover expenses. Avoid surprises by interviewing property managers ahead of time to learn about their services and fees.
Have an Exit Strategy
Of course, you need to buy the right property at the right price for the neighborhood, but buying is only one part of investing. The other part is planning an exit strategy for when and how you will sell so you can purchase your next property. You may want to purchase a property in need of repair, restore it to all its glory, and then sell at a higher price within the year. Or, you might hold on to the property, rent it out and then sell at a later date to offset the cost of renovation. Take financing into consideration when you think about the timing of your exit strategy. If you have a balloon payment or an adjustable rate mortgage set to go up, it can make sense to sell beforehand.
Establish Your Options
Say you do have an exit strategy, but it doesn’t work out. The bottom might fall out of the real estate market just at the time you were planning to sell, and the local rental market might be flooded at the same time. You will be glad you researched your options ahead of buying a rental property. If the house isn’t selling and you can’t get the cash flow you expected in rent, you might offer a buyer a lease-purchase deal. Or, you can go to the wholesale option and sell the property to another investor, albeit at a price that is below market. You may make a smaller profit, but selling at a critical time will allow you to cut your losses in monthly carrying costs.
By using these tips as a guideline you can go a long way in preventing unnecessary costs for rental property investors in Seattle. If you would like help buying an investment property in Seattle contact us today!
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