Investment Properties - Now is the time to buy!

I recently ventured into the land of investment property ownership. Jessi and I purchased a home with Jessi's mom and dad up in Duluth. We will be renting it this coming summer and school year to Jessi's sister and her friends who are all attending UMD.

Earlier in the year, I offered to find Jessi's parents a Realtor up in the Duluth area to help them find and negotiate the purchase of a home. I used the many resources of my company's relocation division to locate a qualified sales agent to help them out. I found myself so excited about the possibilities that exist for an investor in this market that I decided to jump into the market myself. Jessi's mom and dad gladly welcomed us in to the investment partnership and the rest is history. Well actually being a landlord is an ongoing process so technically the rest isn't history but rather future.

The process of finding and purchasing the property was a tremendous experience that made me realize that it would be a good topic to write on. First of all, being a licensed Realtor in the state of Minnesota means I could have went up to Duluth and represented myself in the transaction. The best thing that we did was enlist the services of a qualified Realtor who knows the Duluth area. He could speak to the many questions we had on the rental licensing process as well as to the local real estate market in Duluth.

So how do you decide if a property is a good investment? Great question. The first thing you should do is talk to a few lenders to find out what loan programs are available to you and how much money you will have to put down in order to finance an investment property. After you have determined how much cash outlay you will need and that you are qualified for financing, let the fun begin!

The next step is to determine what local rents are going for on the type of property you are purchasing. In our case we were buying a property near a college campus that would be rented by college students. We looked at available properties in local newspapers and college publications, talked to students that were currently renting homes, and used the internet to determine what college kids were paying each month to rent homes.

We then used the home search at http://www.newmansellshomes.com/ as well as my access to the Duluth multiple listing service to find properties for sale that fit our criteria. I then took the pertinent information (list price, taxes, and an insurance quote) on one of the homes we found to our lender to determine what our required downpayment as well as what our monthly payment would be to purchase that specific home.

From there I could take the downpayment and monthly principal, interest, tax, and insurance information and plug that data along with some other estimates into an investment worksheet that I have access to. We could then determine if our property would cash flow (if we would receive more money in rent each month than what our expenses including our mortgage payment would be), and what our return on investment would be. Once we determined that the homes we were looking at would cash flow and the return on investment was high enough compared to the risk involved, it was time to start looking.

For those of you who felt overwhelmed by those last couple of paragraphs, don't worry, this is where the fun begins. You now get to go look at homes and make a decision on whether to put an offer in on one or not! You still need to do the analysis mentioned above but that is something I am happy to help you complete and sort through.

There are other considerations you need to look at as well. For example you will want to factor in needed improvements or repairs, whether you need to hire a management company, and you need to find out if there are any rental licensing laws governing the rental of your home. Again, all things that I can help advise you on.

If the information above sparked your interest, do not hesitate to contact me. Whether you are looking for a home for a child at college, want a vacation home that could produce rental income, or just want to diversify your retirement portfolio, give me a call and I will be happy to either assist you with the process or will find you a qualified Realtor that works in the area you are specifically considering.

Happy investing!