Investment property can be a great way to supplement your income or plan for your future. But, buyer beware- if you have not planned accordingly your investment could backfire on you and go from a cash cow to a money pit in a matter of months! If you aren’t prepared you could run into a bad tenant- or a string of them- who don’t pay, destroy your building, or all of the above. Fortunately, by proper planning and screening you can take many of the complexities out of this equation. Below is a brief list of things to consider before purchasing an investment property:
1. Formulate a Team
There are a lot of important things to consider before purchasing an investment property: down payment, tax liabilities, market conditions, general banking and trust account handling, landlord-tenant laws, lease preparation, contract formation, and the list goes on.
You can take the time to do the research yourself or you could consider hiring a team of professional to assist you. To handle all these issues you may need to consult an accountant, a lawyer, and a sophisticated realtor… OR you could hire a property management agency- the right agency will be knowledgeable on tax topics, the local market, accounting, and lease preparation and execution. You could, and many people do, manage a single property or a few properties on your own, but if you want to maximize success then you should plan to spend considerable time researching all of these areas before signing that purchase offer.
2. Determine YOUR Location
I say YOUR location because that is often most important to your investment decision. Are you going to invest in your local community or are you going to invest in another area? If you buy in your locale then you may be able to handle the management yourself. If, on the other hand, you are determined to purchase outside of your area (usually beyond a 30 mi radius) then you need to consider the implications of being a long-distance owner.
Local owners have the ability to tackle all aspects of your property management. You can consult with YOUR account, YOUR realtor, YOUR banker, contractor, plumber, etc. Maybe you prefer the DIY approach to maintenance- no problem a quick trip over to your property is usually not much of a hassle.
Long-distance owners need to be aware that the DIY approach is virtually impossible. You will need to find trustworthy experts to consult for your professional services including your contracting. Often times long-distance owners will need to rely upon management companies to do their bidding. This is a crucial decision since your manager will be the one negotiating contract and lease prices on your behalf. It is absolutely imperative that you find a management company that you can rely on to keep an open line of communication and one that you know will hit the ground to track down new tenants and keep your investment in tip-top shape.
3. Title Transfer and Commercial Insurance
This area might not always pop up on the ‘investment property top five list of things to consider’ but being married to an attorney this is one area that I feel is overlooked. Often times investors do not consider the implications their investment properties have on their personal assets until they have expanded their portfolio to multiple properties.
Without going into specifics, you can imagine where I’m going with this topic. For example, a tenant slips and falls on the sidewalk in front of your property because your maintenance person or snow removal company didn’t adequately clear the ice. Who’s liable for injuries stemming from this fall? You, individually? Your homeowner’s insurance? Your maintenance person? With damages for personal injury lawsuits increasing on a daily basis this is a topic worth noting.
