How to Prevent Yourself from Losing Money with Your First Investment Property

While investment properties can be amazing vehicles for passive income generation, they can also be tremendous drains on one’s finances. This is particularly true in the case of first-time investors, many of whom fail to do their homework before diving into the real estate market. Needless to say, regret is not an emotion you want to associate with a purchase as expensive as an investment property. Fledgling investors looking to avoid losing money with their first investment properties should take the following pointers to heart.

Learn More About the Market 

If you’ve never invested in real estate before, you’d do well to get educated on the market before proceeding to purchase your first property. Fortunately, there’s no shortage of ways to go about this. For example, if you have any friends, family members, neighbors or general acquaintances who have experience with this type of investment, don’t hesitate to reach out and ask for guidance. Alternatively, if none of the people with whom you regularly interact have any advice to offer on real estate, consider getting in touch with a highly-rated real estate investment company. If you’d like to learn about the tenets of a desirable property or the signs of an in-demand location or hear real estate market bubbles explained, experienced investors should be the first people you seek out. 

Study Up on Locations 

Purchasing an investment property in an unprofitable area is likely to facilitate disappointment. Regardless of how well-maintained or rich in amenities a property is, its location has the power to make or break its ability to make you a profit. So, before making a serious offer on a property, take some time to study up on its location. 

For starters, research local property values and rental rates. This will help provide you with a solid idea of how much local home-sellers and landlords stand to rake in. It also helps to look into population size, growth rates and local economy. Just remember – few factors are more important than determining a property’s profitability than its location, the more research you do, the more informed a purchasing decision you’ll be able to make.    

Make Sure the Property Undergoes a Pre-Purchase Inspection 

Purchasing an investment property that hasn’t undergone a professional inspection can prove harmful to your financial bottom line. To start with, you’re likely to find buying insurance for a property impossible in the absence of an inspection. Secondly, should you opt to forgo a pre-purchase inspection, you’re liable to discover problems of which you’d been aware long after a sale has gone through. Furthermore, if you don’t have a property inspected, you may very well end up overpaying for it, given that many buyers factor the cost of repairing known issues into their offers. 

So, regardless of how hard a seller pushes back, insist on a pre-purchase inspection for any property you have an interest in buying. A certified home inspector will be able to identify a host of issues that those of us outside of this profession wouldn’t even think to look for, much less be able to recognize. Once you have the results of the inspection, you’ll be able to obtain contractor estimates for any needed repairs or renovations and amend any offers you were thinking about making accordingly. 

Work Only with Licensed Contractors 

When carrying out necessary repairs or renovations, make a point of working exclusively with contractors who are licensed, certified or registered to practice their trade in your area. Although hiring unlicensed contractors may strike you as a convenient way to conserve resources, the risks are much greater than any potential rewards. Since unlicensed contractors have virtually no incentive to guarantee their work, see jobs through to completion or provide accurate estimates, you may wind up spending more money than you ever stood to save. 

A good investment property can serve as a reliable source of passive income for many years to come. However, this shouldn’t be taken to mean that every prospective property you come across is going to prove profitable. Furthermore, even if you find a desirable property in a popular area, success is by no means guaranteed. To help ensure that your first investment property doesn’t become a purchase you regret, put the advice outlined above to practical use.