Real Estate Investing
made simple with the McPherson Sisters
An investment property is a profitable real estate investment. This could be a duplex, townhome, condo or a single family home that you purchase as a rental or rehab property.
LOCATION. Think location first and property second. It may seem like backwards thinking, but you will want to make sure you’re making a smart investment in a highly desirable area. Supply and demand. Land holds value, so you want to evaluate the structure after the lot and location.
You will need to have a larger down payment. Instead of being able to get away with putting down 1-10%, Lenders will require at least 20-25% down because it is a higher risk and doesn’t qualify for mortgage insurance. Your income, credit score, and debt to income ratio will determine how much you are able to qualify for and what your down payment amount will be.
The 1% Rule is a great tool to calculate your return on your investment. Each month you should be set to bring in no less than 1% of the price you paid for the property. That includes both the purchase price and any additional money you put into it, such as cost of repairs or renovations.
For example: You purchase a property for $325,000 and put in $25,000 worth of renovations for a total initial investment of $350,000. Ideally, you want to be pulling in at least 1% of that—so, $3,500—a month in rent or other returns.
Know the risks and consider the rewards. The right investment will set you up for financial sustainability and success but there are risks involved.
You might not have the rental interest that you anticipate or you may end up having to front the cost for expensive repairs. Your property taxes could go up or the local market could shift and change. Research who your tenants will be. A difficult tenant is not a profitable one.
Have more questions? We’re happy to help.