Buying investment property is one of the number one ways to build your personal net worth, get into the real estate game, and start a personal business without all the hassle of a store front and customers. Investment property, done well, is a great way to create a little mostly-passive income and connect with other locals who aren’t yet ready to buy their own home. Whether you’re looking to buy your very first rentvesting property to climb the real estate ladder to your dream house or you’re looking to expand your real estate assets to your first investment property, there are a few questions you should ask yourself before closing the deal on an investment property home. Most importantly, you need to understand the financial situation you’re getting into, be prepared for the responsibilities involved in being a landlord, and have a plan for how your investment property will remain financially self-supporting.
1. Are You Prepared for Higher Interest Rates?
Mortgage lenders have their own way of looking at things and weigh every lending decision based on what they see as a combination of risk and potential reward. The private calculations made by cautious lenders have indicated that owner-occupants are less risky than investment property, therefore investment property purchases tend to also come with higher mortgage interest rates. If you’re trying to do your financial calculations early, remember that most of the quoted rates are based on the assumption that you’re buying a residence to live in personally. Talk to lenders individually to get an accurate investment property interest rate before making any plans.
2. Do You Have a 20 Percent Downpayment?
While it is possible to get a mortgage with less than a 20% downpayment, it’s not advisable. The more downpayment you have ready, the lower your interest rate can go meaning a lower overall cost and lower monthly payments. If you’re going to do something as big as buy investment property, it’s worth your while to save up the full 20 percent in order to get a more sustainable mortgage.
3. Will the Rent Cover Mortgage and Some?
When choosing a specific home to buy, it’s vital that you calculate mortgage and expenses versus what you can reasonably charge for rent. Rent should be based on a combination of average rent in the neighborhood along with the size and quality of the home. Ideally, the amount you charge for rent will not only cover monthly mortgage payments. For the home to pay for itself, you also need to be able to put aside some extra rent money for regularly scheduled maintenance and the occasional necessary repairs.
4. Can You Rent ‘As Is’?
For your first investment property, do not choose a fixer-upper unless you are an expert home construction professional or know one who will work inexpensively for you. Look for nice quality homes well within your price range that can be rented ‘as is’ or with just a little cleaning. Whatever you do, don’t forget to hire an inspector to thoroughly examine the home and assure you that there are no lurking enormous repair bills in your future. Make sure to check on things like the HVAC and water heater to see if they will need replacing and calculate that into the costs.
Of course, being financially and strategically prepared to handle the house is only the beginning of finding the right investment property. Join us in the second half of this two-part series where we’ll cover how to ensure that the home you choose is appealing to the kind of renters you want. For more information about choosing an investment property and being a great landlord, contact us today!
Every now and then, someone winds up owning a home they have no intention of living in. Maybe it’s your old house and you have since bought something better, perhaps you inherited it from a recently passed loved one, or you might have bought it as a vacation property and just never get the time off you intended. For whatever the reason you have a spare residential property, there’s no need to sell!
If you just did a double-take, we’re not surprised. You’re probably getting advice from every direction to sell, sell, sell but this may not be the best financial choice for you or your family for a number of reasons. Property is an incredibly valuable asset, and not just as something to buy and sell. By simply owning, maintaining, and making good use of your spare home, you could be making a significant amount of nearly passive income each month.
This is Your Investment Property
Investment property is the property you buy in order to make money off of it. The income is usually generated by renting residences to individuals and families. The rent they pay can cover mortgage payments, if any, along with any maintenance and repairs. This not only makes the property completely free to keep in your possession, anything left over is pure profit and passive income for you that comes in every single month. This simple, comfortable landlord mechanic is what draws so many people into quietly buying a collection of homes and building a retirement fund from rental income.
You Can Even Airbnb
In fact, you don’t even have to do things the traditional way, though there are certainly enough professionals and families clamoring for comfortable single-family rental homes. The most popular new trend in investment property is to furnish your property and list it on Airbnb or VRBO as a vacation rental property and book it out nightly to travelers and tourists.
Dodging the Real Estate Hassle of Selling
What may surprise you is that renting is actually a lot easier to do than actually selling the home. Moving property is an incredibly tedious business that requires a lot of dedication from everyone involved. To sell, you’ll need a real estate agent and a lawyer. You’ll need to stage the home, give tours of the home, and haggle over price with every potential buyer who comes by. With renting, the minimum requirements are to have the home cleaned and prepare an appropriate lease.
Landlording Hands-Free with Property Management
While being a landlord does come with some responsibilities like maintenance and repairs and handling emergency situations, there’s also nothing in ‘the rules’ that says you have to do this yourself. If your ideal situation is one that handles itself, simply hire a professional property management service. These pros will ensure that your tenants and the house itself are well taken care of. Most property management services will even handle staging, seeking and screening tenants, security deposit protocols, and cleaning the property between tenants as well as regular maintenance tasks. Great property managers can even add value to a home by improving the property’s quality over time.
Owning an extra residential property is, in fact, an amazing opportunity to start making truly passive income. With a great property management service, you can keep the valuable personal asset at zero cost, give renters a nice home to live in, and collect the monthly profits with absolutely no effort. Why go through the hassle of selling the home for a lump sum when you could guarantee yourself passive income by renting it out instead? For more helpful property management tips, contact us today!