Thinking about buying an investment property? Smart move! But if you haven’t bought a lot of properties before, you may not be sure about what’s a good property or how to invest in the right away. To help you, we’ve created a list of 3 questions to ask before buying your first investment home in Richmond VA …
Purchasing your first investment property can be very scary. There are so many questions! If I choose to rent the home, can I make money? How much will it cost to fix up? Who can I work with to rehab the property? How much will able be able to sell it for after rehab? Do I need to work with an agent? If so, should the agent be specialized in investments? Is the neighborhood that the home is located going to become more profitable over time? If I rent, should I use a property management company or do it myself? What are the tax implications of becoming an investor? Will this deal work?
There are so many questions when you are getting started, but answering these 3 questions to ask before buying your first investment in Richmond will get you on your way
Question #1. Have I done my homework?
This first question can be easy to answer but few people think about it. Doing your homework means making sure that this is a good investment compared to other options.
You have probably heard the formula, “look at 100 properties, put in offers on 10, buy one. You need to make a lot of offers to get a single deal. But all too often, beginner investors getting hyped up, rushing out with a real estate agent, looking at 4-5 properties, and buying one of them. This is not always the best strategy as you need to research a lot of properties to understand if you are getting a good deal.
But……You don’t need to look at 100 properties because a good wholesaler will do a lot of that for you! A good wholesaler works with distressed home buyers consistently and can locate great deals for you. A wholesaler should also give you his analysis that shows what your return on investment of that exact property should be, but you should still learn how to analyze the numbers so that you are comfortable and confident with your investment choices. The wholesaler is making a commission fee when the contract is reassigned, so the wholesaler is incented to find great deals!
You could find a property without a wholesaler, but it will require significantly more work even if you are signed with an agent. A typical real estate agent is not going to run the analysis for you on 100+ properties. You will need to ensure that you have the time to perform this analysis yourself.
Question #2. Is the timing right for me?
Is the timing right for you right now or do you need to rearrange your money so you can invest when you’re ready?
Many beginners buy a property but they haven’t thought through their current financial situation, their ability to add another activity to their schedule, nor their current life stage. If you are rehabbing the property yourself, you may need to give up all of your free time, evenings, and weekends for a while. If you hire a contractor for the rehab, you are still not off of the hook. You will still need to stay on top of your contractor and visit the property regularly. If you don’t know your own financial situation, you may struggle and worry way more than necessary.
Preparation and knowledge are always better than just hope when you are looking to buy your first property. Figure out your timing and you’ll save yourself the stress and actually accelerate your path to financial freedom.
Question #3. Can this investment get me closer to my goal of financial freedom?
Most people find an investment property that will pay them several hundred dollars a month and they get excited about the cash flow but they lose sight of the steps involved in achieving financial freedom. To achieve financial freedom, you will have to have enough positive cash flow to ensure that you have sufficient emergency savings, have all of your debt either paid off or being paid by others (rent), have 6 months of expenses in savings, and ensure you can handle college savings. Once you have covered those steps, then you can identify if you are getting enough positve monthly cash flow to cover your current living expenses.
Think about what your current expenses are and make it your first goal to acquiring enough properties to cover your current expenses. At that point, you’ll start achieving financial freedom and can look at quitting your job, going part-time, and investing further, to build your wealth.