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Should I Buy an Investment Property?
Should I Buy an Investment Property?
When people think of investment properties, many automatically assume a second home, vacation home, or rental property. An investment property may also be a lower-valued home, whether because of foreclosure or needed repairs, that you invest into bringing up to market value. No matter what the scenario, your net worth and the value of your portfolio increases. The real question is whether or not you’re ready to add an investment property to your real estate portfolio. For the purposes of this article, we’ll assume you’re looking at a rental property. Here are some things you’ll need to consider.
Calculate Your Expenses
There are quite a number of online calculators you can use to determine whether or not an investment property will be profitable to you. They consider the purchase price, down payment, interest, homeowners insurance needs, municipal taxes, potential maintenance (whether you perform it or you have to hire someone), and more. You then look at the monthly rental value, potential rent increases, and inflation.
Consider the Demographics
Be realistic. If you’re looking at a low-value investment property because you know you can fix it up, you also need to consider whether or not the work is worth the effort. Why was the home left to get to fixer-upper status? Are the people who live in the area where you hope to rent capable of paying a rent level that will make your investment a profitable part of your portfolio? You definitely need to find balance.
People Skills
If you don’t like dealing with people, dealing with tenants may not be your cup of tea. It’s not just about collecting your rent check every month. It’s about dealing with late payments, communicating when repairs need to be made, and enforcing the terms of your lease. You do have options, though. You can do this yourself or you can hire an outside service or agent to handle the vetting and rental process for you, though the latter will end up costing you more money.
At the end of the day, an investment property can turn into a really great addition to your portfolio. Albeit sometimes problematic, the need for real estate and – right now – rentals, is relatively high. Talk to your lawyer and financial adviser to be sure you’re ready and then talk to your real estate agent about potential properties. The right one is out there!
What Type of Insurance DO I Need for an Investment Property
What Type of Insurance DO I Need for an Investment Property?
Congratulations on your decision to expand your portfolio by purchasing an investment property. A true investment property you have opted not to live in may be put up for rent or eventually flipped for a profitable sale. Until then, you’ll need to make sure you have the right type of property insurance.
Looking for a Dwelling Policy
The traditional homeowners insurance policy offers a number of different coverage options. They typically include property coverage for the main building, contents coverage for your personal belongings, coverage for detached structures like sheds or garages, loss of use (in case you have to stay in a hotel during a covered repair), and medical expenses and liability coverage.
As an investment property owner, you may not need all of those coverages – especially personal property. You’ll want to ask your insurance agent for a dwelling policy that covers the buildings and any other structures on the property so that you are covered against your standard risks – fire, theft, burglary, vandalism, and anything else not excluded from the policy. The dwelling policy will also include liability coverage because you are still, as the owner, responsible for personal injury an individual might incur on the property (such a slipping on ice or tripping over cracked sidewalk).
Personal property coverage is not necessary on an investment property that is rented to others. While your dwelling policy would cover the building itself, any tenant you lease to would be responsible for purchasing his own personal property policy.
Landlord Coverage
While a dwelling policy will give you some protection against liability, there are unique risks involved with being a landlord. It’s important to talk to your insurance agent about the availability of landlord insurance for rental properties in your area. This may be a special policy or it may come in the form of an amendment to the dwelling policy you already have.
This type of coverage will offer special protection against loss of rents in the event of a covered loss and some offer limited coverage for items you may keep on the premises. These may include washers, dryers, dishwashers, microwaves, and any other items you leave on the premises for your tenants to use; and it may also extend to items you leave on the premises to make repairs.
In terms of liability, your needs are slightly different. The liability coverage on a landlord policy may also defend you against claims of invasion of privacy, wrongful entry, or wrongful eviction.
The purchase of your first investment property is an exciting event. Make sure you have the insurance you need to make it a viable part of your portfolio for years to come.
