Tips for Buying Your First Investment Property

10 Things to Consider Before Buying Your First Investment Property

1. Are You Ready to Invest?
Investing in real estate is not for everyone. While you don’t need to be listed on the “Forbes Richest” list to buy a rental property, it’s still important that you have a firm grasp on your personal finances before investing in real estate. Real estate investing is not a “get rich quick” scheme, but an adventure that can span decades.

Only you can know if you are ready to start investing, so take a good inventory of your life, and if real estate can fit into your investment portfolio – great! Take time to get educated. Read real estate books, blogs, websites, and forums to get a firm grip on just what real estate investing is and how the most successful investors use real estate to build wealth.

2. Do You Have a Plan?
Perhaps the biggest reason many investors lose money – whether in stocks, mutual funds, real estate, or business – is due to lack of planning. You wouldn’t consider driving from Saskatchewan to Peru knowing only that the direction was “somewhere south.” A plan will help you get from where you are right now to the place you want to someday be.

3. What Kind of Property Should You Start With?
Real estate investing is an exciting field because of the many different niches and strategies you can use to customize your plan to fit your personality and position in life.

Perhaps you enjoy risk and would prefer a “fix and flip” business? Or maybe you are looking at long-term stability and would prefer investing in single-family rentals. Or, maybe you don’t want any involvement at all and would rather just “become the bank” by lending money to other investors and earning a passive return. There are hundreds of ways to invest in real estate, so find the strategy that best fits your lifestyle.

Here are some tips from FoxNews.com about what kind of property you should buy:

  • Well-maintained homes – The time, effort and money required to bring fixer-uppers into good condition make it difficult to get a good ROI on them.
  • Avoid fancy, expensive homes – The higher the home price, the lower the net rental income is compared to it.
  • Buy as personal residences, change to rentals – Owner-occupants get the best financing, and living in the house gives you insight into what needs to be improved before you sell it.

4. What is the Neighborhood Like?
You’ve surely heard the old cliché: “Location, location, location.” The importance of this phrase is no less vital when choosing a real estate investment. You don’t need to necessarily buy a house in the most expensive area of town, but it’s important that you understand what the location is like.
Pro tip: Drive by your prospective property at different times of the day, on different weekdays, to ensure you are comfortable with the location and that it fits within your plan.

5. What are the Local Vacancy Rates?
One of the most costly expenses you are likely to face as a real estate investor is vacancy. However, vacancy is a normal part of an investor’s life and should be fully expected and prepared for.

Check with local property management companies to determine the average vacancy rate in the area where you are looking to buy. Set aside money each month for times when the unit is vacant so you won’t be surprised by the lack of income. Also seek to minimize vacancies by understanding what the local average market rent is and attempting to be just a little bit below average.

6. Do You Know All Your Investment Expenses?
A common mistake by many first-time real estate investors is underestimating their expenses. Sure, most investors know there will be repairs from time to time, but there are numerous other expenses you may need to account for. These include:

  • Water/sewer
  • Garbage
  • Utilities
  • Legal fees
  • Accounting
  • Evictions
  • Vacancies
  • Office supplies
  • Fuel
  • Scheduled maintenance
  • Capital improvements

A good rule of thumb to use when determining how much you should plan on spending for expenses is known as the “50% rule.” The 50% rule states that, on average over time, expenses on a property will equal 50 percent of the income. So if a property rents for $2,000 per month, you can assume $1000 in expenses per month before paying the mortgage payment.

7. How Will You Finance Your Property?
There are many different ways you can pay for an investment property. If you have the money, you can pay all cash and not deal with banks or loans.
However, if you don’t have all the cash needed or you’d rather utilize greater leverage, you can supply just the down payment and take out a mortgage to cover the remaining cost. If you do use a loan, be aware of the term and interest rate on the loan you are taking, and stay away from adjustable rate mortgages as they may go up, causing your payment to rise dramatically.

8. Should You Self-Manage or Hire a Professional Manager?
Whether or not you should manage your property is a personal decision largely dependent upon your plan, personality, skills, and availability. A typical property manager may cost between 7 and 10 percent of the monthly rent, but a good property manager should also decrease vacancy and have systems in place to make repairs less expensive. If you are undecided, always budget in management; if you decide you don’t like it, you’ve already planned for it.

9. Can You Be Your Own Bookkeeper?
Of all the great benefits real estate investing has going for it, easy paperwork is not one of them. Are you confident in your abilities to do the bookkeeping, or do you need to budget for a professional to keep track of the numbers?

10. Do You Have an Exit Strategy?
Finally, always start with the end in mind. This circles back to our discussion on “having a plan.” Know what you are going to do with the property before you buy it. Many investors, during the last housing boom, bought properties with only one plan – to sell soon for a higher price. When the market dropped, however, many of those investors lost their properties.

Always have multiple plans for your investment, and know exactly how you plan on making money with the investment. Will you pay it off slowly over 30 years? Will you rent it out each month for cash flow and sell it when the market peaks? Know what exit strategies are available for you, and plan, from the start, how you will exit.


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Testimonials for Warner

First Choice Bank

Dear Rich: Just a short note of thanks for all your assistance and helpfulness in getting our Washington Township property...
2014-08-26T15:27:16-04:00
Dear Rich: Just a short note of thanks for all your assistance and helpfulness in getting our Washington Township property sold. As we had discussed, this property presented a number of unique challenges, and we had experienced a great deal of frustration with our prior broker and their lack of success in attracting potential buyers. This was also our first experience with an auction of real property, and we were quite pleased with the outcome. You provided me with the necessary insight into the auction process that allowed me to give management here at the bank a clear picture of the risks and rewards associated with the auction process. The planning process for the auction and the marketing effort put forth by your team was very impressive. If we have occasion to sell real property in the southern New Jersey area in the future, it will fully be my intention to look to Warner Real Estate to get the job done right the first time. I wish you all good luck in the future and look forward to working with you again. Sincerely, Edward F. Madden Senior Vice President - Loan Operations

Patricia Lane

Re: Bacon's Manor House Dear Rich: We wanted to again commend you on your outstanding service in selling our property...
2014-08-26T16:24:20-04:00
Re: Bacon's Manor House Dear Rich: We wanted to again commend you on your outstanding service in selling our property in Greenwich. We knew the house could be a difficult sale, given that it was a large colonial estate that we were seeking to sell during the great recession. but you and your company made the entire process run incredibly smoothly for us. From the outset when we discussed your marketing strategy, we knew that your company would tap every possible lead to find a buyer. You used social media and websites to expand our base far beyond the general local advertising route that other realtors utilize. You kept us up to date nearly daily as we moved through your time line to the sale, double checking with all that expressed interest in the property, maintaining communication with leads and eventually finding us a potential buyer. We appreciate the way you took charge in ordering the title, home inspections and termite reports early on so that there would be no delays once we found an interested buyer and in that fashion we had answers to all of their questions before they even bid, thereby lessening the possibility that they would lose interest or default since they already had all the relevant details. We signed a contract with the buyers two days before Hurricane Sandy struck New Jersey. The buyers were over a hundred miles north in Long Island and we were hundreds of miles away in Virginia but you reached out to us repeatedly as we assessed our, thankfully, small amount of damage and also to the buyers who were more directly in the path to keep the deal on track. Then we came to the buyer financing problems. A series of unexpected difficulties arose that left the buyers unable...

Sun National Bank

January 15, 2013 To Whom It May Concern: I am happy to provide a reference for the Warner Real Estate...
2014-08-26T17:11:41-04:00
January 15, 2013 To Whom It May Concern: I am happy to provide a reference for the Warner Real Estate & Auction Company, Inc., a company that I have worked with for about one year’s time. I've worked directly with Richard G. Warner and his staff finding them all to be respectable and knowledgeable. I was also highly impressed with the level of integrity and skill set with all decisions. From the early on conversations of our company discussing the idea of holding an auction, Warner Real Estate & Auction Company, Inc has always been dependable, straightforward and honest. Auction fees were reasonable, and they were always forthright with all costs and processes. Our auction consisted of three properties which all sold at our event. I'm happy to recommend them to anyone who is in the process on selecting an auction firm to do business with. My results were on target from day one and the company fulfilled all of my expectations. I look forward to working with them again in the near future. Sincerely, Jill Santandrea OREO Manager of Sun National Bank

USDA Farm Service Agency

December 9, 2010 Re: Auction of USDA Property — September 10, 2010 Dear Rich: On behalf of USDA-Farm Service Agency,...
2014-08-26T17:18:01-04:00
December 9, 2010 Re: Auction of USDA Property — September 10, 2010 Dear Rich: On behalf of USDA-Farm Service Agency, we would like to thank you for your help in assisting USDA sell its 200 Acre farm located in Deerfield, Upper Deerfield, and Fairfield Townships, Cumberland County, New Jersey. The property consisted of five (5) separate parcels through your efforts the open public Auction process certainly worked for USDA. In the future, should we have any additional properties to sell via auction; we encourage you to bid again. New Jersey Farm Service Agency greatly appreciates all of your efforts in this matter. Sincerely, Paul J. Hlubik State Executive Director

Woolwich Township

April 27, 2010 Dear Rich, Please accept this letter in gratitude for your work towards the successful auction of the...
2014-08-26T17:22:43-04:00
April 27, 2010 Dear Rich, Please accept this letter in gratitude for your work towards the successful auction of the former Woolwich Township Municipal Building, conducted on April 23, 2010. From the moment that we met, I had a comfort level unlike any other that I have had in similar business dealings. I was truly amazed at the way in which Warner Real Estate took charge of the process, and made sure that l was properly informed each step of the way. You truly took a complicated process and made it seem easy and effortless. And most appreciated, was the fact that the process took the burden off of me. I can honestly say that through the auction process, Woolwich Township was able to market its property to a wider variety of potential bidders, and ultimately achieve a more profitable sale. The professionalism and assistance of your staff was also remarkable. I would specifically like to mention Andrew Ware, whose help and guidance throughout the process was greatly appreciated. In closing, I thank you once again for your dedicated and friendly service and for helping woolwich Township to equitably transact the sale of this property in such an efficient and professional manner. Very truly yours, Jan DiBella

Katrina Chamberlin

October 30, 2009 Re: Warner Real Estate and Auction Company I am writing to recommend Warner Real Estate and Auction...
2014-08-26T17:25:47-04:00
October 30, 2009 Re: Warner Real Estate and Auction Company I am writing to recommend Warner Real Estate and Auction Company to anyone with a property to sell in these difficult economic times. This company, and its leader, Richard Warner, went well above and beyond their original agreement with me to sell my property in Cape May County. Their marketing was thorough and excellent but, above all, the attitude expressed by the staff and Rich was incredible. Although I never met any of the staff or Rich in person, since I had already moved out of New Jersey when I contracted with them, I felt as if I was being taken care of by a longtime family friend. I have no hesitation in recommending them knowing that they will do everything in their power to sell a property. I wish all of them, and you, a prospective seller, well. Sincerely, Katrina Chamberlin

Harry & Susan Seeley

July 6, 2009 Dear Mr. Warner and Associates, We would like to express our thanks to Rich Warner and his...
2014-08-26T17:28:09-04:00
July 6, 2009 Dear Mr. Warner and Associates, We would like to express our thanks to Rich Warner and his team at Warner Real Estate for their help in selling our father's house. The auction process went smoothly, and we were very happy with the final bid on the property. We were the intermediaries for the sale, as our father lives in Florida. Rich and his team handled all the long distance paper work and details and made this experience hassle free. Thanks again Rich, for your attention to detail and your expertise. Harry & Susan Seeley

Fulton Bank of New Jersey

September 18, 2008 Re: Auction Services; 9 Fordham Road, Pennsville, NJ Dear Rich and Associates, I wanted to thank you...
2014-08-26T17:31:43-04:00
September 18, 2008 Re: Auction Services; 9 Fordham Road, Pennsville, NJ Dear Rich and Associates, I wanted to thank you for the great job your team did in selling a partially complete home for The Bank in Pennsville, New Jersey. The marketing plan was right on target for the property and your suggestion of an Absolute Auction definitely excited the marketplace. I was very pleased to see (9) registered bidders for the auction and we were very satisfied with the final sales price. If you ever need a reference please don’t hesitate to call me. Thanks again, Joseph Warner III

Mark & Patty West

5 November 2007 Dear Rich, Please forgive my tardiness in writing as Patty and I have been very busy. I...
2014-08-27T09:07:18-04:00
5 November 2007 Dear Rich, Please forgive my tardiness in writing as Patty and I have been very busy. I wanted to thank you for your outstanding professionalism in the auction of our farm. You sat and spoke with us on several occasions and each time were truthful and did not over estimate the value of our farm. You gave us a time line for the sale and stuck to it. You gave us options for selling and helped us pick the most prudent. All in all you restored my faith in realtors because you did what you said you were going to do and got it done. Thank you again for helping us sell a difficult piece of property. Gratefully, Mark & Patty West

First National Bank of Elmer Trust Department

June 13, 2008 RE: ESTATE AUCTION Dear Rich; Thank you for helping The First National Bank of Elmer, Executor for...
2014-08-27T09:16:21-04:00
June 13, 2008 RE: ESTATE AUCTION Dear Rich; Thank you for helping The First National Bank of Elmer, Executor for an Estate, market, and sell six (6) parcels of real estate located in Pittsgrove Township and Upper Deerfield Township. Through the auction process you were to sell all parcels at a reasonable price in this difficult real estate market with one small parcel bringing more than appraised value. You made a difficult task seem easy. Sincerely, Margaret M. Cloak Vice President/Trust Officer

Colonial Bank, FSB

January 6, 2015 RE: REO Sales and Services Over the past two years Colonial Bank, FSB has developed a positive...
2015-01-06T15:48:33-05:00
January 6, 2015 RE: REO Sales and Services Over the past two years Colonial Bank, FSB has developed a positive business relationship with Richard Warner and his team at Warner Real Estate & Auction Company. Through their proven track record in marketing and sales as well as their excellent reputation, Warner Real Estate & Auction Company has successfully represented the bank in selling numerous bank owned properties, including commercial, residential and commercial building lots and single family homes throughout Southern New Jersey. We have continually found their marketing and sales campaigns to be both consistent and extensive in effectuating quick sales and positive returns for the bank. Mr. Warner and his associates have and continue to provide us with first class service, including advising and establishing competitive price points, managing property showings, marketing results and coordinating settlements on the bank's behalf. Colonial Bank, FSB greatly appreciates its business relationship with Warner Real Estate & Auction Company and is happy to recommend their services. Sincerely, Stephen H. Haak Vice-President, Special Assets

Estate Auction: 228 +/- Acre Farm, Quinton, NJ

May 23, 2013 RE: Estate Auction: 228 +/- Acre Preserved Farm, Quinton, NJ (Three Tracts) It's been such a pleasure...
2015-01-06T15:56:36-05:00
May 23, 2013 RE: Estate Auction: 228 +/- Acre Preserved Farm, Quinton, NJ (Three Tracts) It's been such a pleasure doing business with you. You were very helpful and informative, honest in our opinion. Would refer anyone to you who is trying to sell. Thanks again. Jane Weidle, Co-Executor Estate of Albert M. Bell

USDA Rural Development

Re: Real Estate Auction Dear Rich, On behalf of USDA Rural Development, we would like to take this opportunity to...
2016-07-11T10:02:45-04:00
Re: Real Estate Auction Dear Rich, On behalf of USDA Rural Development, we would like to take this opportunity to thank you for all your help in assisting USDA Rural Development in selling our residential foreclosure properties throughout the Garden State. Your efforts with the open public auction resulted in USDA Rural Development selling 45 single family homes in eleven counties. This auction was truly a success. We look forward to working with you in the future to sell our REO properties. Again, USDA Rural Development appreciates all of your efforts in this matter. Sincerely, Howard Henderson State Director

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