Are you thinking about venturing into real estate investments? If so, here are four essential steps to take before purchasing your initial investment property in Southwest Michigan.
Review Your Credit
To prepare for purchasing your first investment property in Southwest Michigan, the initial step is to review your credit reports and assess your credit score. Obtain copies of your credit report from all three bureaus, verify that all data is accurate, and dispute any discrepancies with the relevant bureau. Ensure that you maintain regular payments, as lenders prefer borrowers with no delayed payments for at least the previous year, although a more extended period is even better. This demonstrates to them that you will continue to make timely payments. Additionally, a low debt-to-income ratio indicates to a lender that you can manage the extra mortgage payment. Try to reduce your credit card and other loan balances as much as feasible, aiming to maintain a utilization ratio of 30% or less. This generally shows that you are utilizing your credit lines responsibly.
Before purchasing your initial investment property in Southwest Michigan, the second critical step is to accumulate a down payment of at least 20%. Making a more substantial down payment than the minimum requirement will lower the total principal of the loan. The less money you borrow, the more likely the lender is to approve your application. A substantial down payment, along with a history of prompt payments and a low utilization ratio, may reduce the significance of your imperfect credit score to some lenders, but this is solely dependent on the lender’s policies.
Before purchasing your first investment property in Southwest Michigan, the third crucial step is to conduct extensive research and become familiar with the area. Verify that the neighborhood is in high demand, as this will increase the likelihood of finding tenants when you’re ready. Explore the schools, entertainment, access to shopping and groceries, and other essential amenities. Ensure that you choose an investment that will appeal to a diverse range of family types, giving you the best chance of finding suitable renters in the future. It’s also crucial to examine the current rental supply in the market to determine whether the area is oversaturated, indicating low demand. To make a sound investment, you should choose a location that is not overstocked with inventory, while also ensuring that the prices are not artificially inflated.
Prepare a Budget
The fourth crucial step to take before purchasing your first investment property in Southwest Michigan is to create a comprehensive budget. When you identify a property you’re interested in and want to make an offer, it’s prudent to develop a budget before proceeding. You’ll need to consider repair costs, projected monthly income, and operating expenses to determine your return on investment (ROI) and assess whether the property is a sound addition to your portfolio. Even if you enlist a property management company, it’s essential to track your finances for every rental property you own. Ensure that the property maintains a positive cash flow, as this is the primary determinant of whether it’s a worthwhile investment. Factor in any travel or management expenses on top of the mortgage payment and taxes, and maintain a modest repair fund for the property. It’s critical to review your budget quarterly at a minimum to ensure that your real estate investment is performing as expected.
By partnering with I Buy SW MI, we can guide you through all of these essential steps in your real estate investment journey. Our properties undergo thorough screening to ensure that we maintain a selection of quality investments. We can assist you in reviewing your credit reports, researching the area, and guiding you through budget preparation.