Investment Properties

What is involved in buying an Investment Properties?

Owning an investment property can be a very profitable, buy before you buy, there are certain things to look out for and certain questions you should be asking.

How much can I expect to put down?   Be prepared to put a minimum of  30% down on an investment property. Sometimes the underwriters want to see as much as 50% down for certain properties.  In certain cases we can put together a deal for 20% down and a 10% seller second mortgage. The interest rates for a commercial property or residential investment property will tend to be higher than the typical owner occupied single family.

Is the property in a rural area or a densely populated area?  This might seam trivial, but if you have a vacancy you’d want a large audience to market the space to.  Also when and if it is time for resale you have a better chance of selling a property in a city than in the country. 

Is the property occupied 100% and is it making money?  Let’s face it the property should be making money and the tenants that are renting should be paying their rent and paying it on time.  Getting the “rent roll” and expenses on the building is a good place to start.  You will be able to see how many units there are and how much rent you can expect from each unit.  Are these tenants’ month to month renters or do they have a lease?  There is nothing wrong with asking to see the leases so you can be aware of how many leases are coming to a close over the next year and when.

What kind of shape is the property in?  If the property is going to incur a major expense (i.e. a roof) in the first year you own it you better be prepared with cash on hand.  Has the property been kept up inside and out or is the property going to need 30K - 50K over the next 5 years to get it to the point where it is a desirable rental.  You want the property to be desirable so that you get the right tenants and they want to stay.

Be aware of the laws.  Most of the laws go in the favor of the renter.  It is not easy to evict someone.  It is important to make sure that the renters who are there have a decent credit score and are employed.  This mistake can drag you right into bankruptcy - so cross your T’s and dot your I’s.

Keep paper work on your building.  Make sure you keep records of expenses like; common electric, taxes, landscaping, plowing etc.. Also keep a record of payments and proof of deposits on payments.  This practice will make life easier when it is time to prove these things to a buyer.  Save some of the money that you make from the property for two reasons.  First of all you will be taxed on this as income and secondly it is a good practice to put money aside each year for improvements or unexpected expenses.  Remember if you own a three family there are most likely 6 doors, 3 boilers, 3 electric boxes, and 3 hot water heaters.

Michael Shea lives in West Hartford with his wife and kids and works for Northeast Financial in Middletown CT. 

If you have questions for me feel free to call Michael Shea  @ 860-508-7248