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Buying an investment property? Ask Yourself These 7 Questions First Before Taking the Risk

You may be a seasoned pro at buying homes for you and your family, however, when it comes to purchasing an investment property there are a few aspects that are a bit different.

While it can seem like an easy way to bring in large amounts of money relatively quickly, there is much more to consider. Before you start down the path of property investment it's worth asking yourself these questions.

questions to ask before buying an investment property

What type of property are you interested in?

Are you looking for a house, townhouse, condo or complex? Why have you decided on that option? Would you prefer a "fixer-upper" or something that requires zero work to move a tenant in? It's important to clearly define your goals and what you are searching for.

Keep in mind that the type of property you purchase could have a direct correlation to the tenants it attracts. While not always the case it's much more likely that a family will be interested in a traditional, larger home while a young professional may opt for a townhouse or condo.

How far away the property is from your home?

If you plan to handle most aspects of the rental's maintenance, you will likely spend a decent amount of time going to and from the property. For some, having a rental property that is nearby their home makes things much easier.

Have you researched the market?

It's important that you research the area that you're looking to buy a property and make sure that people want to live there and are looking for a rental property. For example, while there's nothing wrong with purchasing a rental in a more rural area it may be a bit more difficult to secure a tenant than in a highly populated area.

investment property rental income

Do you have the proper funds?

Unlike the 3% down that you were likely required to pay upfront for your personal home, it's much more common to require at least 20% down on an investment property. However, there are many purchasing options to explore so it's best to work with your Real Estate Agent and lender to figure out what will be the best route for you.

Are you prepared for a lot of money to go out before any starts coming in?

On top of money down, inspections, updates and renovations to the investment property, you should be prepared to pay at least a couple months worth of the mortgage until you secure a tenant.

How do you plan to maintain and fix issues with the property?

Maintenance is inevitable with any home. Whether it's simply routine maintenance or a bigger fix like a plumbing issue, you should be prepared with a plan for handling these situations. Maybe you're a handyman and can handle many fixes on your own — that's great!

Just understand that requests could come at all times of the day or night, weekday or weekend and even holidays or while you're traveling. Although some requests may be able to wait a day or two, many will need immediate attention. It's a good idea to have a trusted list of go-to contractors that you can rely on for a speedy fix when necessary.

Do you have an exit strategy?

This might sound like you're planning for the worst, but guess what? You are. You NEED to have an exit strategy in place. The more prepared you can be for all scenarios the better. If things aren't working out as you planned and you need to access money right away, how will you do that? Essentially you should have a plan in place that will allow you to get out of a real estate investment before you start to lose money.

There is a lot more to owning an investment property than you might initially think. It's important that you thoroughly research all aspects of owning a rental property and construct a business plan that outlines how each nuance will be handled.

plan for buying an investment property

It's a good idea to work alongside a trustworthy Real Estate Agent as you walk through this process as they will be able to guide you and answer any questions that may arise. You might also ask your Real Estate Agent if they have any past clients who own an investment property that may be willing to speak with you. By gathering advice from real investors, you'll gain insight into the business of real estate investing. It may also give you time to mentally work through different aspects of the process you may not have even considered.

While it may be tempting to simply jump right in and learn as you go, just remember that the more you prepare before starting the process the better your chances of success are in the world of investment property. Here's to passive income!

Want more advice about all things home — including homebuying or selling advice? Nestiny is a great place for homebuyer education and to help you gauge how ready you are to buy a home. Journey Homeward allows you to enter all your wants and needs while the True Affordability Tool will break down your budget, showing what you can comfortably afford. You will also receive a Ready Report that will give you a vital head start in the home buying journey, saving you valuable time and money.

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Ready To Become A Smarter Homebuyer?

By signing up, you agree to Nestiny terms of use .
Whether you need a step-by-step guide, video resource or one of our many helpful tools, Nestiny has your back 24/7 for all things home buying and selling. You choose the pace, material, and when and where to learn. Unlock your free access to Nestiny today!
Are you a real estate professional? Go here .
By clicking this button, you'll enjoy free unlimited access to Nestiny and agree to our terms of use . And don't worry! Nestiny will not share your information with any parties without your consent.