Question 19: How do I buy an investment property?
“How do I buy an investment property?”
This is the question I’ll answer today, Day 19 of a 30-day series examining the top questions in real estate.
So how do you buy an investment property? Well, it’s kinda like putting pants on. The jeans go on just like the suit pants.
There’s a lot about the buying process that is exactly the same.
Let’s talk as if you’re the – I’ll call it a “retail investor” – where you’re investing in residential property – or 1 to 4 units – the buying process doesn’t really differ.
The lender is likely the same as the one you used for your primary home. Title will transfer the same way. Appraisal, yep the same.
But there’s always the exception. When you’re looking for residential properties, you want recent sales comparables – or comps - to compare your property against and make sure you’re not overpaying for it – and an appraisal supports the sales price.
The challenge comes in when the property is being sold as if it were a commercial property – or 5+ units where recent comps don’t matter but the overall financials of the actual property portfolio. This is where an appraisal may not – probably won’t support the sales price.
I recently went through this so it’s fresh in my mind.
OK. Don’t want to get too heavy at the beginning of this question. The point is, if you’re a newbie investor, please make sure you’re working with an agent who has done this many times before.
The most basic step is to just start looking around and asking questions. For example, you can go to my website thedomusgroup.com/investor and sign up for alerts and browse searches on pre-set price points.
My website is an IDX site – which means it is essentially pulling in real-time data – as opposed to the Zillows, Realtor.com and other sites which are lead generators and just throw a lot of listing – eye candy I call it – and don’t really distinguish if they’re even available.
But when you fill out the form only to be called up by an agent telling you the home isn’t available, it’s frustrating.
You can have the confidence of browsing an IDX site like mine and actually seeing fully available properties. Go ahead.
Take a browse and feel free to sign up for alerts based on the criteria you outline. So you’ve started poking around and asking question.
Much like buying a primary home, once you’ve spoken with a lender and have your money lined up, you can then schedule property tours.
Let me say that being an investor takes a little different mindset than the retail buyer. You’ll need to have a little more intestinal fortitude, long-term thinking and overall flexibility than someone buying a safe, comfortable home they’ll live in.
Depending on your goals, identifying entry-level properties become a challenge for many because they look at it as they would their own place.
And you can’t.
Many of these things are hard to explain and must be experienced for it to make sense.
Plan for a 20-25% down payment and don’t forget 2-3% for closing costs. When you’ve secured your funds, identified potential properties, run your analysis on rents, and toured properties, you’re ready to make an offer.
Be sure to have a plan for your investment property. The odds are in your favor for long-term financial profitability if you can buy the first couple right.
Be sure to lean on your Realtor and lender for their expertise. Successful investing is made so by a team. This is not an individual sport.
When it comes to real estate, it matters who you work with. If I can answer any questions you have or assist you with buying or selling a home or investment property, reach out to me directly at 703-552-5259.
If this information is helpful, give me a thumbs up and share with a friend. To get my updates, take a moment to follow me on all the social channels @thedomusgroup. My name is Jon Tripp and I’m a Realtor in Northern Virginia. As always, thanks for joining me.
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