It’s hard to turn on a TV or the listen to the radio without someone telling you that now is the time the time to buy real estate. It’s true that home values are at a historic low and rates are fantastically low which is always a great combination for purchasing a home. However, for many of us figuring out how to take advantage of this opportunity can be a little confusing. Let us take a minute to clear up all the confusion so that you can see clearly if this opportunity is for you.
What is Real Estate Investing?
Real Estate is what is called a tangible investment. It’s similar to investing in gold, silver, or even rare coins in that it is a tangible item that appreciates over time. It’s a fairly consistent investment in that it appreciates at a steady rate and rarely has the big drops that you commonly associate with investing in stocks and bonds. However, real estate has some wealth building characteristics that other investments simply do not. A good way of judging the value of an investment is by examining the Return-On-Investment (ROI). Let’s look at the main forms of (ROI) on real estate investments.
The cash flow is one form of (ROI) that can greatly increase your working capital in the event you want to purchase more investment properties. The cash flow can be realized by placing a mortgage against the equity in the home (Pulling money out) or by selling a home and taking the profit from the sale to provide the necessary capital you need to purchase other properties. A property can also cash flow in the form of rent. Any profit from rent can be utilized as income to qualify for additional real estate investments.
Return on Taxes
There are tax advantages for those individuals that own investment properties. Many investors are more focused on the tax deduction(s) of owning an investment property then they are on the cash flow. This includes deductions for business equipment (such as appliances used to furnish the home), mortgage insurance, and even in some cases the points paid on a home loan.
This is one of the largest forms of (ROI) in a real estate investment. In many case investors are looking for a property that is priced below value in an effort to actually buy equity. If you have long term goals buying a property that is in a popular area or in the path of development can be a lucrative investment. Over time the properties value will be driven up by demand or necessity (lack of developing space).
What to Do With an Investment Property
There are really two main uses you’ll find when it comes to an Investment property. They are:
One of the possibilities of owning an investment property is turning it into a rental. Buying the right property and putting it on the market at the right rental rate can provide you with a great stream of income. This cash flow can be used to purchase more rentals, or just as additional income for whatever you may need.
If being a landlord is not your bag, then you could consider “flipping”. Flipping is the practice of buying a home below market, or in need of some TLC, and fixing it up to attract buyers at a profitable sales price (selling it for more than the purchase price you paid). If you’re a handy individual, or good at organizing handy individuals, this may be a good option for you.
Research, Research, Research – It’s very important to do your homework when considering getting into purchasing investment properties. You need to research what it takes to be a landlord if you’re considering renting your property out, and examine if you’re up to the task. You need to examine the expenses of owning an investment property against your financial position. Do you have the reserves (assets) for the times there isn’t a renter? Real Estate Investment is a fabulous investment if it fits in your life, but can be a real burden if it doesn’t.
Location, Location, Location – You’ll hear Real Estate Agents say this all the time and the simple truth is it is accurate regardless of what you intend to do with the property. A good location is money in the bank because it ensures that should you choose to rent the property out, it will attract renters. A good location will also attract buyers, and if you’re considering flipping the property you want a home that is desirable to potential Buyers. Find the Right Deal- Learn your market. It won’t do you any good to buy a low priced home only to discover it is low priced because no one wants to live there. That low priced home just became real expensive if no one wants to buy it or rent it. Pick an area that you would want to live in and find the right deal in these areas. If you’re confused refer to the two points above.
Team Up With a Pro – A Real Estate Agent can be a fantastic asset in helping you evaluate areas, the market, and whether or not the home you’re looking at is the right deal.
Find the Right Financing – There are all kinds of great programs designed to help investors purchase homes. The right financing can save you money monthly, increase your purchasing power, and limit your cash investment upfront.
If you’re considering purchasing an Investment Property, let me help you get started on the right foot. 305-206-5144