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May 2016: Is it Time to Add to Your Portfolio?
Markets periodically change. Sometimes it is a buyer's market, sometimes it is a seller's market. Depending on the market and your current financial picture, it may be time to increase your investment portfolio. If you decide to take this step, here are some tips when buying.
Compare property values and rents
Check out comparable properties against the property you are considering for purchase. Since it is going to be an investment, you need to check both the values and the area rents. Investigate further if you see large swings or confusing figures. If rents are very low or have too much variation, find out why. You want "actual" rents, not only what is "offered" for rent.
Seek out appropriate rental properties
When looking for an investment, query if the location of the property will attract good tenancy. Will the property be difficult to rent because of area crime, poor schools, or other difficulties? Question if the property will attract a reasonable number of applicants. For example, higher end properties are normally much more difficult to rent because proportionally there is a lower number of renters.
Investigate the difference in available loans
Loan requirements also change periodically. Check all loans carefully for how they will "perform in the future." Adjustable loans can change the property from a good investment to a bad one when interest rates skyrocket, which can lead to increased foreclosures because the property becomes "upside down." Be realistic about what can happen.
Consider the impact of property tax
Often investors base their purchase on "current" property tax laws. Then, when they purchase at a higher property value, the taxes increase. Avoid this trap. Review the state tax laws, possible tax changes, and incorporate the "new" projected property tax into your figures.
Check the insurance coverage
Just as the tax bill can go up, so can property insurance. Additionally, you will want to incorporate a "landlord/rental" policy into your estimates that will give you more protection than the standard liability policy. Question what is covered in an emergency and/or disaster in the policy. Ask if the property you are considering could have difficulties with reasonable coverage.
Confirm utility costs
Check the utilities companies to find out who is billed for services, the tenant or the owner. Research realistic utility figures for the property you are considering. Then work with us, your property managers accordingly, on how to handle utilities if they are listed in your name. Plan for future increases in your investment budget.
Plan maintenance costs
Future maintenance expenditures are generally related to the condition of the property you purchase. You may have an opportunity to purchase a fixer upper, but you need to obtain "realistic" estimates and look for hidden expenditures. Do not fall into the trap of thinking that you will not incur maintenance costs because you purchased the property in excellent condition. Think of your own residence and the items that it takes to maintain the property; there is always maintenance required in any investment property. Always plan for the unexpected.
Consult the experts
Tax laws can change and your financial picture with them. Be sure to talk to people who are well versed in investment property before you purchase, such as your tax person or financial planner.
Inspect the property
Always perform a thorough inspection of the property before buying. If you cannot personally do this, use someone reliable to do this important step for you. Hiring a professional Home Inspector to examine the structural and mechanical systems of the property is a sound investment. Get the facts before signing a loan.
Use this checklist when considering the purchase of a property and contact us to assist you regarding the rental market and the property before buying. Remember that real estate is a long-term investment and, if bought wisely, can increase the value of your financial portfolio. As your property management company, we are happy to help you avoid problems.
The material provided in this newsletter is for informational and educational
purposes only. It is NOT legal advice.
Although we believe this material is accurate, we cannot guarantee that
it is 100% without errors.