If you’re thinking about purchasing investment property? Real estate has produced many of the world's wealthiest people, so there are plenty of reasons to think that it is a sound investment. However, experts agree, as with any investment, it's better to be well-versed before diving in with hundreds of thousands of dollars. Here are the things you should consider and investigate.
Investing in rental real estate looks like a great idea on paper. You just buy a place in a nice area, find tenants and let the cash roll in – right? Well, actually there are some matters you have to consider before buying a property and putting a "for rent" ad on the lawn and in the newspaper (or online). Here we provide a rundown of the pros and cons of owning rental property and give you a few tips on how to turn a profit as a landlord.
Here are 5 Tips you should follow before buying a rental property
1.Compare Buying with Financing - Is it better to buy with cash or to finance your investment property? That depends on your investing goals. Paying cash can help generate positive monthly cash flow. Take a rental property that costs $100,000 to buy. With rental income, taxes, depreciation, and income tax, the cash buyer could see $9,500 in annual earnings. On the other hand, financing can give you a greater return. For an investor who puts down 20% on a house, with compounding at 4% on the mortgage, after taking out operating expenses and additional interest, the earnings add up to roughly $5,580 per year. Cash flow is lower for the investor, but their annual return on investment is 27.9% versus 9.5% for the cash buyer.
2.Use an Agent - I will often use Redfin or Apartments.com to view properties in my area, but I still prefer to use a real estate agent to close the deal, because they have insights and experience that I don’t. If real estate investing is going to be your full-time job, then you’ll want to get your own license to save on agent fees. In the US, the fee for a real estate agent is usually 3% of the purchase price, and paid for by the seller. The buyer will have other fees, but an agent fee is not one of them.
3.Choose right location - Buyers want to find a location that allows easy access to the places they frequent the most (work, school, shopping, recreation, place of worship, friends and family). Look for easy access to the main roads and check traffic flow. Checking this out before a purchase can help save you from hassles getting out of the neighborhood and onto the main thoroughfare or from an unreasonably long commute.
The location of the home within the neighborhood is also important to many people. Some people prefer a lot near the main entry, while others like to be away from traffic and further into the development. If there is a park, pool or recreation area, some owners would choose the closest available lot. Cul-de-sacs are favored by some, and some people like living on the main boulevard. Talk about your preferences, and ask your realtor if certain lot locations bring a higher purchase price.
4.Buy a Low-Cost Home - While repairs present a challenge, so can buying a larger property than you're ready to handle. Starting small – purchasing a single apartment, condo or duplex, for example – can help you get grounded in the idea of investing in real estate and decide whether it's really the right step for you.
5.Calculate Operating Expenses - As the expression goes, only the paranoid survive. OK, not always, but there is no harm in being a little paranoid and considering every detail beforehand. Start with calculating the money that you already have and what you can borrow before buying your first investment property. Next, calculate how much it would cost to purchase and renovate the house. Also, keep in mind the operation costs. Finally, estimate the price you are going to list your property for and cut out the expenses to get a rough estimate of the profit you stand to make. Honestly speaking, you may not even hit half of the estimated profit, but this calculation is necessary to keep yourself in the safe zone.
AUTHOR: RIZWAN KHAN
Hi, this is Rizwan Khan, Marketing Assistant who supports the entire Marketing department by completing a variety job.I had a spell no more striking than other people in my job description. I did all the things you weren't supposed to do. I had a motto: When in doubt, try it. Take a few minutes and drop me a message. I’d love to chat!
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