Are you looking to buy an investment property in Houston or the surrounding areas? There are many things to think about before moving forward. In our latest post, we will discuss the things that are often overlooked when purchasing an investment property.
Those who do not pay in cash will usually need to get a conventional loan to buy an investment property in Houston. A 20% down-payment is needed in order to do this. If you’re working with a partner, ensure that the agreement is iron-clad. Everything from handling repairs and evictions to selling the property should be in writing. If you would rather reap the benefits of owning real estate without dealing with maintenance, another option is to invest in a Real Estate Investment Trust or REIT, which allows you to pool your money with other investors.
Fixed costs go beyond the mortgage. Consider the costs of homeowners insurance, property taxes, and average utility and routine maintenance costs. This includes landscaping, pool service, pest control, etc. Items that are routinely replaced, such as a/c filters and smoke detectors should also be taken into account. Regardless of how small they seem, all of these costs add up quickly and have a great effect on the overall expenses for the home.
You will inevitably come across problems, so it’s important to have funds set aside for sudden issues, such as a broken water heater or washer. You must be able to quickly fix a leaky roof or pipe to prevent further damage. Insurance will cover many things, but you should be prepared to cover others on your own.
Sometimes first-time investors think that the property will be occupied 12 months out of the year. This isn’t always the case, so don’t base your numbers on 100% vacancy. Learn how other properties are doing in your area, and go from there.
Repair & Rehab
If the property needs work, have a good comprehension of construction time frames and expenses. The costs for repairs typically exceed the original budget, so plan accordingly. The goal should be to add value to the property. If you can do some of the work yourself, even better. Adding unique and universally appealing details to a property will increase the value you can sell or rent it for.
If you love a neighborhood, it’s important to look at the numbers to make sure it’s growing on paper. Observe census reports, job growth, and new construction permits being pulled. Is the area growing at a rate to achieve the returns you’re after? See what other properties are doing nearby. How much are they renting for? If you want to resell, what’s the average number of days on the market for homes similar to yours? Long story short, don’t presume that everyone else will like a location or house because you do.
Any investment comes with risks: bad tenants, vacant properties, evictions (which can cost a fortune in legal fees), etc. The risk is always there, but if you have a strong exit strategy in place, you will always be prepared for the unexpected.
They say that most millionaires got there using real estate. The profits are limitless when smart investments are made. Start small, learn the ropes, and thoroughly research every decision you make. By working with like-minded people and investment professionals, you can easily begin a venture in real estate investment.
Are you ready to buy a Houston investment property? If so, we can help! Send us a message, letting us know what you are looking for, or give our team a call now! (281) 738-3898