Buying an Income Property? 5 Things to Consider First

For many people, the dream of buying an income property is a powerful one. Real estate is widely considered to be one of the smartest and most profitable investments available and owning an income property can be a rewarding experience. If you’re considering buying an income property, however, you’ll need to weigh the realities first.

5 Things to Think About Before Buying an Income Property

Before you jump with both feet into your new lifestyle as a real estate baron when buying an income property, consider these five things:

1. Not all income properties are created equal

The success and sustainability of your income property will depend in large part on where you are and what the economy in your area looks like. For example, an uptown apartment in Manhattan will be a more lucrative piece of income property than a single-family home in a small, rural town. With this in mind, it’s important to match your expectations of income property ownership with the realities of the area you live in.

2. Income properties may be more expensive to purchase

The buying process for an income property is different than that of an owner-occupied property. Down payment requirements may be higher and routine things like mortgage insurance may be difficult or impossible to come by. Be sure that you’re prepared for these things before you commit to buy.

3. Interest rates on income properties are often higher

As a general rule, the interest rates for investment properties are higher. When borrowing funds for your income property, be sure that your monthly payments will be manageable enough to allow you to pull a profit from the new property.

4. Fixer-uppers can quickly get overwhelming

Unless you’re a professional real estate “flipper,” buying a fixer-upper and renovating it can quickly become a massive project. While undertaking a big housing project can be exciting and rewarding, it’s critical to ensure that you have the time, energy, and funds needed before you make that decision.

5. Income properties are a long-term commitment

Like any home-buying experience, purchasing an income property generally means you’re committing to the property for at least a number of years. With this in mind, it’s important to ensure that you have the resources and ability to manage repairs on the home, deal with renters (or hire a property manager to do it for you), and pay monthly expenses on the home for the foreseeable future.

The Case for Rental Properties

While buying a rental property can be a rewarding experience, it’s wise to ensure that you’re ready for all of the realities and challenges therein before you take the plunge. While it’s possible to succeed with rental properties, you’ll need to make sure that you’re prepared for everything that comes along with being a freshly-minted real estate tycoon, first.