"If I had a way of buying a couple hundred thousand single family homes and had a way of managing them… I would load up on them…"
– Warren Buffett on CNBC, Februrary 27, 2012
While most real estate investors can't afford a Warren Buffett-like purchase of "a couple hundred thousand single family homes," with home mortgage rates at all-time lows, many who haven't invested in real estate property before are beginning to consider it.
- Is your local real estate market a good place to rent or sell?
- Who is your target market? Singles? Families? Students? Grad Students? Retirees? Your target market will determine the location in which you choose to search for and purchase real estate.
- Location, Location, Location. Are properties available in a location valued by your target market?
- Where is your competition? Can you choose a better, more competitive location?
- Once you select a property to consider for purchase, what is its condition? Is there any deferred maintenance – such as the roof? What repairs are needed and how much will they cost?
- Are there any environmental issues? What used to be located on or around that property?
- Is the property insurable? Talk with your insurance agent – can you get insurance through your current provider for your target market? If you plan to offer student housing, ask specifically. Some agencies won’t underwrite policies on student housing.
- How much do you have to put down? Typically a bank will require a minimum 20% cash down payment based on either the sales price or appraisal, whichever is lower.
- Do the cash flow numbers work? Make sure you can get enough rent to cover your mortgage payment and take care of operating expenses. Consider and plan for operating expenses such as advertising, cleaning and maintenance, management fees, insurance, legal and professional fees (CPA/attorney work), repairs, taxes, and utilities.
- Can you manage your monthly debt payment after expenses?
- Do you have a plan for vacancy or major non-recurring expenses? It is always a good idea to keep a savings/escrow account to cover 3 months of expenses for your investment.
- Will you hire a property management company or manage it yourself? Are you ready to handle leasing the property, repairs and maintenance calls?
- Are you going to own the property in your personal name or work with your attorney to develop an LLC that will directly own the property for liability purposes?
If we can help you answer these questions or others about investing in rental property, please don't hesitate to contact us, 540-260-9060.
Of further interest:
First Bank & Trust Company, one of the top community banks in the United States, is a diversified financial services firm with office locations in southwest Virginia – serving Blacksburg, Christiansburg and surrounding areas – northeast Tennessee, and the New River Valley and Shenandoah Valley of Virginia. Financial objectives are addressed by offering free checking products for personal and business accounts, and assessing lending solutions managed by mortgage, agricultural and commercial lending divisions. Comprehensive financial solutions are available through trust and brokerage service representatives. For businesses, First Bank & Trust specializes in business services, including online banking and online billpay, and business loans.
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