3 Things You Should Know When Buying an Investment Property
Real estate investing is all the rage. Everywhere you go, you hear things like:
“Buy an investment property – it will give you passive income in retirement!”
“Buy a vacation property and rent it out short-term – it will pay for itself!”
Yes, it is possible to turn a property into an income-generating asset. You buy the condo, put it on the rental market as a long-term or short-term rental, and the checks start rolling in.
As my mother used to say, if it were that easy, everyone would be doing it. And she was right. But as some other wise person said, the harder (smarter) I work, the luckier (wealthier, more successful) I get.
Here are 3 important things to know before buying an investment property.
1. Know Your Why
Many people looking to buy an investment property or second home on the Big Island want a vacation home. They want to live in the house/condo part of the year while on vacation, or they are snowbirds who come to Hawaii for a few months each year to escape a cold winter elsewhere. Other folks are looking to buy a property now with the plan to move to Hawaii to live full-time in the future.
It makes sense to rent out a property you are not using as your primary residence and make some money. Knowing how and when you want to use your property will help you decide whether to pursue short-term or long-term rentals for your property. This will also help you decide whether to purchase a single-family home or a condo.
2. Know Your Numbers
Once you know it’s going to be a few years before you want to move in or how many months a year you will rent out the home as a short-term rental, you need to figure out if it makes financial sense to rent it out by looking at the costs and potential income.
Costs: If you use financing, you’ll have monthly mortgage payments. Then there are property taxes, HOA fees, electric & internet bills, and the cost of maintaining the property over time.
Finally, if you’re not living in Hawaii, you will need a property manager who typically charges 25-30% of your gross income.
Income: If you are looking to use rental income to cover the costs of the property or even to provide you with an income, you need to accurately estimate how much you can earn from renting it out.
3. Know How Much Work You Want To Do
Being a landlord is work. Things will break, and accidents will happen. Tenants will have questions and complaints. Tenants run into financial difficulties and stop paying.
A short-term vacation renter might throw a big party and completely trash the place. If you are not living nearby, taking care of your property can be even more complicated.
Decide how much work you want to do and if you are willing to pay a property manager to do some or all of the work for you.
Do You Want to Buy An Investment Property?
If you are interested in buying an investment property on the Big Island, I’d love to talk. Some excellent properties are available at the beautiful Mauna Lani Resort and Waikoloa Beach Resort on the Big Island, but also many other beautiful properties that fit your needs better.
I’m a real estate agent who specializes in rental properties. Let me know what you’re looking for, and I’ll help you find it! I look forward to connecting.
With the warmest aloha,