When you want to make your money work for you, investing in real estate may be your best and safest option. Owning rental properties is a great way to make some extra money but you need to make sure that you have all the facts before you dive into the challenging task of being a landlord.
The first thing you need to consider is how long you intend to own the property. If you plan on having the investment property for a long time, you will need to spend more money in maintenance and making repairs. There is more that is likely to go wrong in a twenty-year period than in a five-year period. However, this does not mean that long-time ownership is a bad thing, as there are also risks with owning an investment property for a short time. By owning for a longer period, the property may increase in value. If you are only going to have the investment for a short time, it could easily decrease in value without having the opportunity to regain that value before you sell. For beginner investors, or those that do not wish to invest too much money, long-term ownership may be the way to go.
Every landlord needs a good network. This will make it easier to find out what is for sale, or what is going to be on sale. The network may include other landlords, real estate agents, or other members of a landlord or property owner's association.
You also need to make sure that you are finances are in order before you can begin to consider the possibility of investing in real estate. Mortgage companies will require a larger down payment and will also have higher interest if you have outstanding debts and large balances still to be paid on your credit report. These higher amounts will cost you and you may not end up making as much as you originally thought on your investment property. So before you make a purchase, obtain a credit report and make sure that it is accurate. Pay off any debts and then go to the mortgage companies.
Not only will you want to make sure that you will get a good deal on a mortgage, you also want to make sure that you have enough money left over after the purchase to make any necessary repairs to the investment property. Improvements always seem to need to be made and unexpected vacancies can sometimes occur. It is a good idea to always have at least one month's rent available to cover these costs.
You also want to make sure that you are not paying too much for the property. It is important to remember that when buying for investment purposes, unlike when buying for living purposes, the chances of making back what you put into the property are slim if you pay too much to begin with. For this reason, investors are best advised to buy when the market is slow, to obtain a better price for their purchase. Fast-moving markets generally tend to have bigger price tags attached to properties and also involve bidding wars, which can be tough on an investor that want to avoid overpaying.
It is important to make sure that the rental income will cover any costs that the owner will need to pay. That includes the mortgage for the property, property taxes, insurance, cost of repairs, and possibly utilities. When determining what the profit if any, will be made, it is important to consider that even if you are only going to break even, you will still profit in the end. This is due to the value of the property increasing as well as tax breaks that are available for those who own investment property.
And while on the subject of tax breaks, it is important to know that some repairs done on the house will provide tax breaks while others will not. If you need to patch a pipe or fix a hole in the roof, these will generally be considered for a tax break, as they are viewed as repairs. If however, the entire plumbing needs to be replaced, or the property needs a whole new roof, these are looked at as improvements and no tax break will be given.
Just like buying a primary residence, buying investment property means that numbers need to be looked at, and one needs to consider how long they will be using the property. An investor needs to take a glimpse into the future to see what the investment property could cost him, or make him, down the road to determine if buying investment property is a wise decision.
