How to Buy an Investment Property
Updated: Aug 17, 2022
If you're interested in real estate investing, follow these steps on how to buy an investment property.
You're interested in purchasing investment property to build wealth, but you're unsure of where to start. Though the process sounds very similar to buying your primary residence, the one key difference is the real estate investment analysis. This analysis will help you determine what property is the right one to invest in. All of the other steps in the process pretty much mirrors buying a primary residence. Let's take a look:
Step 1. Know how much you can afford
This is everyone's first step. You most likely have a certain amount in your bank account and you're looking to invest it. Be on the safe side of the assumptions. Depending on the investment property, it might need renovation work done, which would take away from your reserves and from the amount you can use towards a down payment. If you plan on being safe and putting 20% down, that's great. If you can't afford to do 20% down, but still want to purchase an investment property, the best way to do so is by living there. When a property is owner occupied, there is more flexibility in the types of loans out there and the % down payment needed.
Step 2. Get preapproval and research the areas you want to invest in
The reason I put preapproval before you find the property is due to the market conditions. Right now, April 2022, it is truly a seller's market. Properties don't stay on the market long, so you don't want preapproval to be the reason why you couldn't make the purchase. It's better to get the preapproval upfront - it does last 90 days after you receive it so you do have some time to find a property. Now is where the research comes into play. Look around everywhere, what neighborhoods do you want to buy in? What types of homes? What towns have a high percentage of people who rent vs buy? This is also the time when you enlist a realtor's help if needed.
If you need help deciding whether a property will generate the cash flow you want, purchase my Rental Property Investment Analysis Calculator below: