WorldExecutivesDigest.com | What Is an Investment Property? A Landlord’s Guide | Are you wondering how to invest in real estate? Are you wondering if an investment property is a smart decision?
These days, purchasing a property you don’t plan to live in right away or even at all can be a great business move. Yet you’ll need to do some careful research in order to make sure your investment pays off.
What is an investment property, and what do you need to know about how to become a landlord?
Here’s what you should be thinking about.
What is an Investment Property?
An investment property is a property you purchase without the intention of making it your primary residence. The intent is to get a return on your investment through a future reselling of the property or rental income.
Some investors will also purchase a rental property with the intent of fixing it up, renovating it, and selling it for a nice profit. This is commonly known as flipping.
Are You Ready For An Investment Property?
Before you look into getting an investment property, you’ll want to ask yourself a few questions.
First of all, the job of a landlord goes beyond collecting rent. You may be called upon for basic repairs, such as unclogging a toilet or fixing an electrical box. If you aren’t handy, you’ll need to be ready to pay someone else to do the repair work.
In addition, you’ll need the money to make a 20% downpayment. Mortgage insurance, commonly known as PMI, isn’t available for rental properties. A personal loan can help you with this, but you’ll want to consider any other debts you have and how you’re going to pay them off.
It’s also important to know that you may be paying higher interest rates on a rental property than on a traditional property. In addition, you’ll want to factor in any unexpected repair costs.
It’s important to know how you’re going to lease your property, and the types of agreements you’re going to have with your tenants. For example, ask yourself “what are the benefits of a ground lease?” Successful current landlords in your area can help you answer questions about the details.
What Are the Benefits of an Investment Property?
You’ll need to do a little soul-searching before determining whether or not you’re ready to invest in a property. However, once you do, there are a number of important benefits you’ll reap from your funding.
One of the main advantages is that you’ll have a passive source of income that you can count on. Sure, there will be the occasional leak or clogged toilet, but if all goes well, you’ll be collecting a nice amount of money each month that doesn’t require additional work. Once you’ve paid off things like the mortgage and taxes, you can put money aside for your child’s education or your own retirement.
Many folks also appreciate the flexibility when it comes to selling. If you’re currently in a buyer’s market, you can continue renting out your property until you feel you can get a good price for the home.
Some investors also purchase investment properties with the thought that they could eventually move into them. For example, you may purchase a property in a coastal neighborhood and rent it out for now. Yet when the time for retirement comes, you can simply move into it and avoid the hassle of looking for another home or making a downpayment.
Many investors also enjoy the tax benefits associated with rental properties. For example, you can write off improvements, depreciation, and any ordinary and necessary expenses.
Some people also enjoy rental properties because they give them a means for staying in control of the money they’re investing. Unlike other investments such as stocks, no one else will be making those decisions for you.
What Kind of Property Should You Look For?
Choosing just any property as an investment usually isn’t wise. Since you won’t be living there any time soon, its sole purpose is to earn you some cash.
Location is critical when it comes to choosing the right property. You won’t, for example, want to be in an area where the population is declining or there isn’t much buzz.
Think about the type of people you’ll likely be renting to. For example, many of today’s millennials are choosing to rent rather than buy because they like the flexibility. They want to wait until they’re certain they want to put down roots before purchasing something.
Since this is the case, you’ll want to choose a property in an area where there’s a decent school district. Low-cost homes are generally recommended because you’ll be able to keep your expenses down.
Be on the lookout for amenities close by which families or young professionals could take advantage of. Are there parks, nice shopping centers, or restaurants?
Quality renters will also be looking for low crime and access to good public transportation. A growing job market is also a good indication that you’ll be able to find renters eager for housing. For example, if a larger company is moving into your area, you can expect there to be lots of prospective renters to choose from.
You’ll also want to consider the average cost of rent in the area. Will it be enough to cover the cost of owning the property? All of these numbers will factor into your final decision.
Making Smart Decisions
What is an investment property? In short, it’s a property that you purchase in order to get a return on your investment rather than to live in. With some careful research, you could be earning great money on quality property in no time.
Don’t stop getting smart about real estate now. For more great advice, read our blog today.