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Investing in Real Estate: Financial Questions

Before you purchase an investment property, you should do a complete financial analysis to make sure you have a comprehensive understanding of the monthly expenses required to operate and own the property.

And, take a hard look at your own personal finances, don't jump into anything like buying real estate with thinking about your future and how you're going to pay for things if you run into a problem or can't find a tenant for a period of time.

The key is to have a safety net, whether that's savings or someone who can loan you money in an emergency situation, just in case there's a problem with the property or you can't find a tenant for a period of time.

  • Are interest rates low at this point in time or at higher levels? If they are low, then it's good to take advantage of the low rates and borrow money now.
  • Insurance policy expenses?
  • Property management fees?
  • Are there marketing fees when there's a vacancy?
  • Who handles the filling of a vacancy - you or property management?
  • What's the down payment requirement?
  • Do you as the investor have money set aside in case of a long term vacancy or another type of emergency? Of course, if you expect a long term vacancy you shouldn't buy in the property - but there will be some vacancies over the course of your ownership.
  • What are the terms of your loan, is it fixed or adjustable? ARMs are risky as many have learned recently. Stick to your plan and if you can't get the mortgage that works for you, don't buy the property.
  • What is the time frame for your investment - is it 2, 5, 10 or 20 years?
  • Taxes - how much will you have to pay each year
  • Taxes - how much interest can you deduct from your loan each year

Questions you should ask in specific areas:

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