It’s not on Wall Street, it’s right on YOUR STREET!
Real estate is an excellent investment and one that can be a serious contender to increase your healthy financial future. It can be your college fund for the kiddo’s, the retirement income you’ve dreamed of, it can even be the successful new income producing business venture you’ve been seeking to begin RIGHT NOW!
Everyone has heard of the fix ‘n flip; purchasing a distressed property at a low price then reselling after some rehab work at a tidy profit. A great opportunity, but not the only income producing opportunity available to those who decide to invest via the real estate industry rather than Wall Street. Purchasing to hold a property while renting it out is another fabulous way to put this terrific investment instrument to work increasing the health of your financial future.
Ready to tackle the role of landlord? Begin by choosing the right property to match the goals you’ve set for such an investment. You basically have two choices, single family home or a multi-family unit? Whichever you decide is right to get your new adventure started, here are 4 key areas to carefully consider before you make the plunge.
1. Do the research first!
What are the rent to own ratios in the area you are considering? What are the costs involved in complying with local laws and regulations? Will the rental rates cover your monthly expenses and give you cash flow? What are the turnover rates? Is there a demand for the type of rental you’ve chosen to invest in? Be sure you know what the initial investment and the ongoing expenses will be to ensure the success of your new venture, and that you will be able to meet those expenses.
2. Pay cash or finance?
Even if you have the cash, it may not be the wisest course of action to pay all cash. Check with your CPA, what are the tax benefits and/or consequences? If you are going to need a mortgage, can you get a loan for a rental you are looking to buy? What additional costs, like insurance or repairs needed, will be involved? Until you secure that first paying tenant, what expenses will you need to cover and where will that money come from? In this type of investment circumstance it is vital you have a stable financial plan in place for known expenses and a backup plan for unexpected occurrences that could easily derail your train to success if you aren’t prepared.
3. How to recognize the right investment for your desired outcome?
Run the numbers short term and long term. Unlike the emotional choices that usually rule a personal residence purchase, an investment property decision is best made by the numbers. You should expect this real estate investment to yield two income returns. First will be rental income you’ll realize when you have reliable, steady tenants who pay their rent on time and consistently. Second will be the increased equity you’ll realize over time, especially as you maintain the property in good repair.
4. Hire a knowledgeable local real estate agent!
Purchasing an owner occupied property is not the same as an investment property, so working with a local agent who knows the area is advantageous. They’ll be able to help discover those rental statistics and rental rates that will help you make your best decisions. Understanding of zoning and applicable real estate laws governing a rental property will prove invaluable as you delve into this new venture. Your chances of success right out of the gate improve considerably with a dedicated professional by your side throughout the process.