Real estate investors made up 14.8% of home purchases in the first quarter of 2024, the highest figure in recorded data, Realtor.com reported in July. While investor activity has slowed overall, the report found that new investors are still entering the market.
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It’s worth pointing out that selecting your first investment property involves a lot of work, including choosing the right location, understanding financing options and figuring out property management while maximizing returns.
Here are six expert tips for first-time investment property homebuyers looking to make money.
Research the Location Thoroughly
“The modern interpretation of the age-old mantra of ‘location, location, location’ is still relevant for first-time buyers entering the world of property investment, but it’s taken a new twist,” said Maxim Zubarev, a licensed real estate specialist at Inside Dubai Estate. “Today’s savvy investors have to look beyond a neighborhood’s current aesthetics and into data-driven indicators of growth potential.”
Some traditional factors you’ll want to look into before investing in a community are school ratings, crime statistics, property values and current rental rates. However, newly emerging factors include startup companies, co-working spaces and craft breweries, which can boost a neighborhood’s value.
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Look to the Future
Zubarev also pointed out that zoning changes, economic development plans and infrastructure projects can reveal the direction of an area. If a community plans on adding a new transit line or a major tech company, for example, this could lead to property values increasing for investors.
This means you’ll want to thoroughly investigate various locations before deciding on your first investment property, since you’ll want to ensure that you can earn money through rent and that your home’s value will increase substantially in the future.
“Focus on areas with real growth potential — up-and-coming neighborhoods where property values are on the rise, not where everyone’s already looking,” added Alex Shekhtman, an experienced mortgage broker and founder of LBC Mortgage. “You want to be ahead of the curve, not following the herd.”
Figure Out Your Financing Options
“Too many first-time buyers focus on finding the lowest interest rate and ignore the bigger financing picture,” said Shekhtman. “Sure, the rate matters, but flexibility is key. You need to understand your options — whether it’s a conventional loan, FHA or even portfolio loans that cater to investors.”
Review your financing options to find a loan that is suitable for your current finances, and don’t forget to consider less traditional ways of covering your mortgage payments. For example, Zubarev suggested house hacking, which is when you live in your investment property and rent out the rest of the space.
A mortgage advisor who works with investment properties can help you assess your options and put together a financing plan that fits your investment goals.
Don’t Borrow Too Much
“You’ve got to be strategic about how much leverage you take on because, at the end of the day, it’s your cash flow that keeps you afloat, not just the size of your mortgage,” said Shekhtman.
You don’t want to borrow too much for that first investment property, because you’ll need funds to deal with emergencies and any issues that could arise. As a first-time investor, you’ll want to write down every possible expense and plan accordingly — including a plan for expenses you forget to consider in advance.
Decide If You’ll Hire a Property Manager
Property management is a big challenge for first-time investors, because they’ll experience many issues for the first time. Shekhtman pointed out that your returns will take a hit if you’re constantly fixing leaks or chasing tenants for missed payments. Consider finding a reliable property manager who can handle the day-to-day so you can focus on growing your portfolio.
Zubarev added, “Quality property managers already have good relationships with reliable contractors, know the local rental market and can offer great advice on property improvements that will yield the biggest return.”
A property manager is an additional cost, however, so take that into account if you do decide to hire one.
Develop a Comprehensive Maintenance Strategy
Zubarev stressed the importance of developing a comprehensive maintenance strategy to help prevent expensive problems and raise property value. He explained, “For example, replacing old, less durable materials with more durable products during routine replacements can reduce long-term maintenance costs.”
Don’t assume that your home won’t require maintenance — even if it’s in perfect condition when you buy it, eventually, it will need work. Plan for this expense accordingly, because you don’t want to find yourself dipping into credit cards.
Maximize Returns by Finding a Property You Can Upgrade
Shekhtman noted that you can maximize returns by looking for properties that allow for add-ons or upgrades, like extra units, renovations or even vacation rentals. Every upgrade could help you increase rent and find the right tenants in the future to provide you with higher returns.
He concluded, “Real estate is a long game, and you’ve got to think beyond the first deal. The goal isn’t just to buy a property, it’s to build something that lasts. And if you can do that, you’re already ahead of the game.”
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This article originally appeared on GOBankingRates.com: I’m a Real Estate Broker: 6 Tips for First-Time Investment Property Homebuyers
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