If you’ve been watching the housing market’s long-term slump, you’ve probably wondered if it’s time to pick up an investment property. Here are the things you need to check before you make that commitment:
1. Your finances are solid and your emergency fund is in place. You have cash on hand to cover unexpected repairs. You’re either paying cash for the property or your credit is sound enough to get a good loan.
2. The overall economic picture is stagnant or improving. If you wait for the big turnaround, you’ll be too late. Beware of trying to catch the very bottom; it can’t be seen until it’s passed.
3. The local economy is strong. Keep in mind that all real estate is local. Some markets have turned around and others are beginning to turn around; these are the best places to begin your search. Make sure you understand where the economic growth comes from, and what will make it continue.
4. The rental market is good. When “for rent” signs disappear in a matter of days and landlords keep raising their rents, you’ve found a great prospect.
5. The cash flow looks wonderful. If that bargain foreclosure can be put in shape quickly and cheaply and your mortgage payments are covered by the rent, you have an ideal situation. If not, figure out how long it will be before you achieve positive cash flow. Be sure you can identify the catalysts that will keep your property value appreciating while you wait.
6. The property has location, location, location. The schools are good, transportation is accessible, and there are no big negatives.
7. The property is structurally sound. Look past dated appliances and dirty carpet. But if the house has major foundation cracks or termites, take a pass.
8. Make sure you’re ready for the commitment. A rental property can be a profitable investment, especially when a down economy creates lots of bargains. If you enjoy fixing up houses and can handle the occasional emergency call, being a landlord is for you. But owning rental property isn’t for everyone, and it isn’t a good deal everywhere. Make sure you understand the market and can meet the challenges before signing those papers.