Are you in the market for an investment property and you’re looking at ways you can finance your purchase? Do you worry that you’ll make a mistake that will cost you money in the long run?
Individual investors own more than 14 million rental properties in the US. It’s a great way to build wealth but you have to know what you’re doing to make it work.
When you’re making financing decisions, it’s good to know the pitfalls. Here are some common property financing mistakes and tips to avoid them.
1. Not Creating a Budget
When you’re considering a real estate investment, your first step should be creating a budget. That will allow you to figure out what to expect as a return on investment on different types of properties.
A plan allows you to work out your costs in detail before you invest. You will see how much you can afford to spend on upgrades. Without a budget, you might get in over your head. A budget is also a great document to show potential lenders because they will see you’ve done your homework.
2. Shopping for the Lowest Rate
It’s easy to think the lowest financing rate is the best deal. Sometimes low rates come with terms that can cost you money over time. There may be higher fees or your rate may increase in future years. In future years, you may end up paying a higher rate.
Do your research and look into different sources of financing. There are many reputable lenders such as Kiavi rental loans.
3. Not Considering All Costs
Owning and maintaining an investment property is more than just the financing costs. You’ll have to pay legal fees to search and transfer the title, and the lender might require mortgage insurance.
The cost of property ownership includes ongoing costs as well. Think about maintenance, taxes, and utility costs when you’re making your decision.
4. Underestimating Rehab Costs
Buying an old property and doing a major renovation can be a great source of wealth. Often when you begin a renovation, it can turn into a larger project than you planned. As you find unexpected repairs your costs will increase.
5. Short-Term Thinking
If you are always thinking of the best ways to get fast money, you’re missing the point. Investing in real estate is a long-term strategy unless you plan to flip properties. When you have a solid plan, you will make the right decisions.
6. Not Hiring a Manager
Owning a rental property is more complex than just collecting rent every month. You’ll have to learn how to attract a good tenant and what to do if they are late with their rent. You’ll also have to take care of any maintenance or problems that arise.
That can add up if you own several properties. A property management service can save you time, which allows you to focus on what you do best.
Avoid These Property Financing Mistakes
Now that you know about these common property financing mistakes, you can take the steps you need to avoid making them.
If you enjoyed learning about financing your property purchase, we have more business advice on our blog. Check it out today!
