One of the factors for real estate to be a good investment is buying the property right.
The first thing that you must do is get your financing in order. Determine how much money that you have to apply to the purchase of a property and how much you would like to pay monthly. Your total mortgage payment (principle, interest, taxes and insurance should not be more than 30% of your gross monthly income.
Next you should get a copy of your credit report with credit score from the three (3) major credit reporting companies. They are, TransUnion, Equifax and Experian.
Once you have your credit report with the credit score, contact some lenders and see what rate they will offer you based on your credit score and the amount of money that you want to finance. Be aggressive, let them know that you are shopping. Be confident in your lender and understand that the one that offers the lowest rate may not be able to deliver.
Now that the financing is in order, you know how much you will be borrowing and how much money you will need, it is time to pick an area that best suits your needs. Some consideration should be give to distance from employment and distance from things that you like to do.
After choosing the area, determine the type of property that you would like. Do you want a single family property? Detached or attached? Do you want to be responsible for the exterior maintenance or would you like to be part of an association and pay dues?
Once you identify the area and identify the type of property you must understand the market that the property is in. Is it in a “buyer’s market” or a “seller’s market”?
A buyer’s market is when there are more properties on the market and few buyers looking for that style of home. A seller’s market is when there are more buyers looking for homes and there are fewer homes that are available.
Usually in a seller’s market there are more than one buyer interested in that particular property. The seller usually gets multiple offers on their property and they rarely make any concessions to the buyer. It is easy to pay too much for the property.
You still can get bargains in a seller’s market if you offer a substantial earnest money deposit and a settlement within 30 days. The earnest money deposit is the amount that you put up when you sign the Agreement of Sale. The fewer contingencies that your offer has, the better your chances of it being accepted.
In a buyer’s market, the buyer has their choice of homes because of the number of homes on the market. The seller is usually willing to make concessions to help sell the property. You have to be careful and determine why there is a buyer’s market. Will the reasons have a negative impact on future values?
The key to buying right is doing your homework. Know your financial situation, be aware of what and where you want to buy and buy it right.