Tips for buying investment property

These tips on buying investment property will help you avoid some of the most common mistakes made by small real estate investors.

Buying investment property is a well documented path to a comfortable retirement. However, many investors have left the arena, scarred and embittered, after losing their shirts to bad decisions.

So you want to buy real estate that will be easy to lease or rent, bring in great income every month, and gain equity through appreciation over time...all the while giving you access to the financial gifts of depreciation.

Moreover, you probably want leverage - other people's money (the bank, private mortgage lenders) to finance the deal.

Am I right?

Well, if I'm right that these are the things you're looking for from your income property, then you're actually looking at the formula for the IDEAL real estate investment property:

I - Income
D - Deductions
E - Equity
A - Appreciation
L - Leverage

This is not an original formula. It's one I've heard over and over again at real estate investing seminar, conferences, etc.

However, it succinctly expresses just about all the best benefits of owning the right type of income real estate asset.

I promised you specific advice for buying income real estate, and here it is:

1. Determine whether you want to be a landlord
2. Purchase "Bread and Butter" Priced Properties (within conforming loan limits)
3. Do research to verify that neighborhood is popular with renters. Try to find out why.
4. Concentrate on buying substantially discounted properties (usually some distress or urgent sale need)
5. Don't overlook your due diligence with inspections and repairs

So many so-called "real estate investors" have suffered through torturous short sale attempts and eventual foreclosure because they weren't conservative enough to be concerned with some of the following questions:

1. Will I be able to handle the payments if I can't refinance or sell?
   

   Many buyers made poor purchasing decisions in the last sellers market based on previous rates of momentum-inflated appreciation.

2. Is the house priced below the conforming loan limits so that I'll have access to a wide range of buyers if I need to sell?
   

   Too many "Flip this house" and "Flip that house" TV episodes were showing houses being bought for upper six figures, only to be renovated and sold for seven figures. Cute, but that's just real estate gambling...for those who presumably can afford it.
   

   Everyday real estate investors should always think about the saleability of the property they're about to buy (just in case)

3. Will I be able to sell if the real estate market slows down?
   

   The simplest and best way to protect yourself from the uncertainty of the real estate cycle is through buying investment property in desirable bread and butter neighborhoods at substantial discounts.

   These are "starter home" and "working class neighborhoods" where business still gets done long after other ritzier areas have begun to crack under the strain of falling prices.

4. What makes this neighborhood popular for good tenants? Is there census tract information or other research?
   

   Some areas have census tract information that negatively affects your ability to rent to certain publicly-assisted tenants.

These mistakes above are not all that can be made when you're seeking to buy investment property, but overlooking these considerations may have the most catastrophic results.

Some real estate agents couldn't help their clients avoid these mistakes because they weren't sensitive to these issues themselves. I can't tell you how many real estate agents have called me over the last 14 months, because they made similarly poor decisions for their own portfolios.



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