If you’re considering investing in real estate in the Twin Cities, there are a few important steps you should take before buying your first investment property. Investing in real estate can be a great way to build long-term wealth, generate passive income, and diversify your investment portfolio. However, as with any investment, it’s essential to approach it with a strategic mindset and be well-informed to make sound investment decisions. Here are four things to do before buying your first investment property:
Review Your Credit
One of the most important things to do before purchasing your first investment property in Twin Cities is to check your credit reports. This is because your credit score plays a significant role in determining whether you qualify for a loan and the interest rate you’ll be offered. To get started, request a copy of your credit report from all three major credit bureaus and review them carefully to ensure that all the information is accurate. If you spot any errors, be sure to dispute them with the respective bureau.
To improve your credit score and increase your chances of getting approved for a loan, it’s crucial to make all your payments on time. Lenders like to see a solid payment history over the past 12 months, or even longer. Additionally, having a low debt-to-income ratio is another way to show lenders that you can handle the additional mortgage payment. To achieve this, it’s recommended to pay down credit cards and other loans as much as possible, ideally maintaining a utilization ratio of 30% or better. This demonstrates responsible use of your credit lines and improves your overall creditworthiness. By taking these steps to improve your credit score, you’ll be in a better position to secure financing for your first investment property in Twin Cities.
The second important step to take before purchasing your first investment property in Twin Cities is to save up a down payment of at least 20%. This is because lenders generally require a down payment of 20% or more to approve a mortgage for an investment property. By making a larger down payment than required, you’ll reduce the total principal of the loan, which can improve your chances of getting approved and potentially lower your monthly mortgage payments.
In addition to the down payment, lenders also consider other factors such as your credit score, payment history, and debt-to-income ratio when assessing your eligibility for a loan. A large down payment combined with a good payment history and low utilization ratio can help offset a less-than-perfect credit score. However, it’s important to keep in mind that each lender has their own criteria for approving loans, so it’s crucial to shop around and compare offers from multiple lenders to find the best financing options for your investment property. By saving up a sufficient down payment and maintaining a good credit profile, you’ll be well on your way to securing financing for your first investment property in Twin Cities.
The third thing you need to do before buying your first investment property in Minnesota is research and become familiar with the area. Make sure the neighborhood is in demand; this will help you find renters when you’re ready. Check out the schools, entertainment, access to shopping, and groceries. You will want to make sure you choose an investment that would work for multiple family types. This will give you the best chance to find a good renter in the future. You will also need to look into the current rental supply on the market to make sure it isn’t flooded, this will indicate a low demand for the area. To make the best investment, you want to pick a location that isn’t too flooded with inventory but make sure the prices aren’t over-inflated.
Prepare a Budget
The fourth thing you need to do before buying your first investment property in Minnesota is to prepare a budget. When you find a property you are interested in and want to make an offer, it is smart to prepare a budget before you make an offer. You will need to factor in repair costs, monthly expected income, and operating costs to determine your ROI to see if the property makes sense to purchase and hold in your portfolio. Even if you are using a property management company, you will still need to keep track of your own finances for every rental property you own. You will need to make sure the property maintains a positive cash flow, otherwise, it’s not worth the investment! Make sure to factor in any traveling or management expenses on top of the mortgage payment and taxes, and keep a modest repair fund available for the property. Your budget should be reviewed every quarter at a minimum to make sure your real estate investment is performing as it should.
When you work with us at Matt Buys Houses MN, we can help you through all of these steps. We thoroughly check all of our properties to maintain a selection of quality investments. We can help you review your credit reports, research the area, and walk you through budget preparation.