Buying an investment property continues to be one of the best ways to invest. To many investors, buying investment properties is all about increasing their wealth and securing their financial future. Not to mention protecting their gains from the state and federal income taxes.
If you are planning to buy an investment property in Denver, Colorado, you might want to familiarize yourself with the dos and don’ts of buying an investment property. This can help you avoid making the common mistakes that many investors make. Here are some useful tips for buying investment property in Denver.
1. Consider the Metrics
When buying an investment property, consider reviewing the metrics. In other words, consider its potential to generate wealth in the long-term.
This means reviewing the vacancy rates, checking where the local residents are employed, reviewing the historical growth trends, population growths as well as the demographics.
To avoid digging a hole for yourself, look for red flags. A good example is a major company in the area terminating the employment of employees or a company that has recently closed shop.
Additionally, predict the kind of people who will be looking to buy or rent homes in the area- can be families, young professionals, students, or retirees. Based on these findings, you will be in a position to purchase the most suitable property.
2. Carry Out a Comprehensive Rent Survey
One of the biggest mistakes that many property investors make is skipping the rent survey. Without a rent survey how will you determine if the property has the potential to generate consistent income?
In that case, conduct a thorough rent survey by looking at similar properties in the neighborhood and learn how much the rent is going for. This will help you set a realistic price.
Additionally, survey the current occupancy rates to see if there is demand for rental units similar to those you intend to buy.
3. Assemble an Experienced Team of Professionals
Having an experienced team of professionals by your side is important. It will not only help you make an informed decision when purchasing an investment property, but it will also play a crucial role in the success of your business.
Look for an experienced realtor who better understands the local market and an appraiser who will evaluate the value of the property you are planning to purchase.
It is a good idea to have a trusted lender (can be a financial institution or an individual), who is in a position to provide you and your prospective buyers with financing, and an experienced and reputable attorney who specializes in real estate.
Additionally, you can include a HVAC contractor, electrician, plumber, and painter to your team since the property you are planning to purchase will need some repair and routine maintenance.
If you don’t want to go through the hassle of assembling a team, you can hire a property management company to do it for you instead.
4. Have Someone Inspect the Property
It doesn’t matter whether you are buying a new or old property- a thorough inspection of the property is a must.
It’s highly advisable to hire a qualified home inspector who will check whether the roof, attic, basement, walls, stairs, floor, and appliances are in working condition.
Also, have the inspector check whether the electrical wiring is done correctly and that there are no loose wires hanging.
A thorough inspection will help assess whether the property meets the local building codes. It will also save you money that would have otherwise been spent on fixing problems that you aren’t responsible for.
5. Estimate the Cash Flow
Before buying a Denver investment property, it’s advisable to take estimated costs such as those of routine maintenance, repairs, and renovation into consideration. It will help you create a more realistic budget and properly estimate the cash flow.
You might want to allocate more money to the estimates in case these costs surpass your set budget.
If you choose to hire a professional property manager to manage your property, be sure to consider the property management fees when estimating the cash flow.
6. Have an Exit Strategy in Mind
When buying an investment property, it’s important to have an exit strategy in mind.
What do you plan to do with the property after purchasing? Do you want to sell it at a higher price after a few years? Do you plan to rent it out and then sell it off after returning your initial investment plus some profit?
Once you have an exit strategy in mind, you can go ahead and purchase the property knowing that the investment will provide you with great returns before making your exit.
7. Establish Your Options
While having an exit strategy is a great idea, in some cases, it doesn’t work due to varying factors.
For example, the value of investment property in Denver may plummet right at the time you are planning to sell. Another scenario is reduced demand for investment properties in the area.
If such scenarios occur but you luckily had already established your options, you would surely be in a better position.
The first option would be to offer a prospective buyer a lease-purchase deal. Another alternative is selling the property at a wholesale price, which would be a price that is below the market. Even if you only make a small profit, you will be able to cut your losses early especially in monthly carrying costs.
Purchasing an investment property is taking a great risk but with the right strategies in place, it can be a lucrative business. Hopefully, these tips will guide you through when buying investment property in Denver.