5 Questions To Ask Before You Buy Investment Property In Today's Economy

Purchasing property as an investment is not a decision to be made lightly, or on a whim. To create a sensible investment property strategy, there is a tremendous amount of information that you should research, and a somewhat complicated process with which you should become familiar. Once you have learned the process and internalized the necessary information, there are five basic questions that you need to consider prior to deciding upon your investment.

First of all, what types of property are you interested in purchasing for your investment? The choices can range from single-dwelling residences to duplexes, commercial property, and even land that is completely undeveloped. You need to know the answer to this question before you can even begin to think about financing, and other aspects of the investment process.

The second question is fundamental as well: what geographic area is going to be your primary focus? This is Level I research, according to the author of "The ABCs of Real Estate Investing", Ken McElroy. This Level includes determining whether you want to invest in property within your city, state, or elsewhere in the country. Level II and III research narrows that decision down even further, focusing on the particular neighborhood in which you want the property to be located.

The third question involves your financing strategy. How do you plan to pay for the investment property? Small properties are often paid for completely, but large properties usually require investors or a major loan from a bank or other financing institution. Many banks will even loan you the money for smaller properties, providing that the real estate in question has a proven history of profitability.

Fourth on your list concerns the presence of a team. Do you have a team to help you manage the work involved? There are so many aspects to investing successfully in a piece of property that you will need others whose expertise plugs the gaps in your own knowledge. McElroy's advice is that a base team should include an accountant, attorney, property manager, and a broker - with tax consultants, surveyors, architects, engineers, and others added later.

Next, what will be your necessary outlay for repairs before the property can begin to reap a profit? Certain areas available for investment may be suffering from varying degrees of blight - requiring extensive expenditures before you can lease the property and gain a return on your investment. Make certain that you know the costs before you invest, and that you are comfortable with the risks. Understanding the answers to these five questions will provide you with a firm foundation for your investment strategy, but be prepared for a continuous list of concerns once you undertake the venture.