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Buying your first piece of real estate for the purpose of generating an income is a different process than buying your primary residence. First, you have to think about the housing and/or tourism market. You also have to consider with greater scrutiny your credit score and ability to come up with the initial funds needed for the purchase. Keep reading for more insight into the process as well as tips on how to make your property marketable without breaking the bank.
Determine your target.
The very first thing you have to do is decide if you want to purchase a rental or vacation property. The two are very different. A rental home is typically leased on a long-term basis, anywhere from three months to one year or more. A vacation property, by contrast, may be rented for a weekend to a month.
If you choose a rental, make sure that you are aware of market trends. According to MarketWatch, Boise, Idaho, is the number one real estate market for the year, but there are much less expensive cities, including Memphis, Tennessee, and Rochester, New York, that may also make sense. When your goal is to own a vacation property, spend some time researching local and worldwide tourism statistics. As a general rule, you’ll make the best return on your investment by having a property that is within close proximity to major attractions and is priced somewhere in the middle of other available properties.
Land investing is also an option that many people are unaware of and there are plenty of creative ways to make money from raw land (including building a ranch, farm or homestead or living off the land). Since it can be hard to sell your land, there are opportunities for investors to pick up properties at prices well below market value (check out these 19 best websites to buy land for sale). Many owners also offer owner financed land. Just make sure you do your proper due diligence on rural vacant land. There are even places where you can obtain free land in the US!
Assess your financial situation.
When it’s time to apply for a mortgage on a rental or investment property, be prepared for anything. It’s a different beast altogether than buying a home to live in. The biggest difference is that your lenders will scrutinize the purchase to decide whether it – and you – are a worthwhile risk. MoneyUnder30 smartly suggests having lots of documentation and cash in hand to back up your aspirations. Also, make sure you understand all of the closing costs you will be expected to pay as well as any title exceptions.
Make it desirable.
So you have researched properties and finally gotten a mortgage. Closing day has come and gone, and now you’re left with the property that has the sole purpose of making money. But before it can do that, you are going to have to spend some money making it desirable. Before you do anything, make sure to fix any major infractions found on the home inspection.
Once the big stuff is taken care of, one of the quickest and easiest ways to transform a property if it is outdated is to add new carpet. Carpet is considerably more affordable than hardwood or tile. And even without a ton of home renovation experience, you can remove old carpet in about a day. Use carpet tiles, which you can find at major retailers such as Lowe’s and Home Depot, for the best price. Once you have determined what color carpet you’re going to install, add a coat of paint throughout the property. If budget prevails, and you don’t mind exercising your elbows, you can also paint the cabinets in the kitchen and bathroom.
Next, give the entire property a deep cleaning. Open the windows and let in the fresh air. If you are furnishing the home, cabin, or condo, stick with regional decor. In other words, don’t outfit a mountain cabin with a beach theme. Remember, vacation property guests want an immersive experience.
You may also want to take some time to revamp your marketing strategies to make sure you are really pulling in leads.
Ultimately, buying a rental property, whether you plan to use it as a long or short-term income-producer, is a big decision. It is not one to be made lightly, but, with the right research and capital to start off, it may be the best decision you’ve ever made.