- 1). Figure out how much money you can put down and how much you can afford to pay in mortgage installments without jeopardizing your lifestyle or other family plans. You must have investment capital for a down payment and stable income for continued mortgage payments if money must be borrowed. According to AllBusiness.com, the total payment including principal, interest, taxes and insurance should not exceed 28 percent of your gross income.
- 2). Find a prime location. The old adage about location being primary for an investment home has yet to be discounted. According to Liz Pulliam Weston of MSN Money, the location factors that are in demand include proximity to a growing urban center, a number of recreation options, good weather, other people making commercial investments in the area and signs that others are starting to "discover" the area and make investments. If you tend to react emotionally about a quaint area, make a plus-and-minus comparison list to more accurately gauge the location's potential.
- 3). Find a depressed home property within the prime area you have settled on, rather than a nice home in a bad area. According to the CCH Financial Planning Web site, you should find the worst home in the best neighborhood you can afford. Checking multi-list property publications will give you a good idea what properties should get a closer look.
- 4). Develop a relationship with a realtor you feel comfortable with and who has references other than family and friends' recommendations. A realtor can steer you through the troubled waters that can develop in making a major purchase like an investment home.
- 5). Take the time to be thorough in your research and let the idea grow. Get a certified structural engineer to survey the home. The money spent will be well worth it if it keeps you from purchasing a money pit. Falling in love with that little cottage with the picket fence can cloud your investigation of crumbling foundation, faulty wiring and inadequate plumbing. The things that make the property depressed in a good neighborhood shouldn't be a bad foundation or leaking roof. Cosmetics are fixable, but major structural repairs may kill the investment potential.
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