Buying real estate and keeping it can be a good way to make money and feel good about your investment. Unlike investors in stocks and bonds, people who want to buy real estate can use leverage to buy a property by paying only a portion of its total cost upfront and then paying off the rest, plus interest, over several years. So, what do you need to know before purchasing an investment home?
An “investment property” is a house someone buys with the plan of renting or selling it quickly for a profit. Unlike a primary home, an investment property may have more than one unit, usually anywhere from two to four, and each unit can be rented out to make money. A single investor, a couple, or a small group of people buy real estate to use as an investment.
You might want to start taking your real estate investments more seriously now. Even though the housing market is at its hottest point in years, people who have never invested in real estate before should ask themselves the five questions below before getting started.
When real estate prices keep rising, it’s easy to think that buying and keeping a property is a way to make money while you sleep. But you need to figure out where you stand financially right now. Have you saved enough to pay for repairs, insurance, and mortgage payments while you’re between tenants? If so, questions like these will help determine if you can buy an investment property now without putting other financial goals at risk.
You may find it easier to decide which home to buy if you are clear about your needs and priorities. Whether you should invest in rental property depends greatly on how much money you have. If you can do so, investing can be a great way to make more money.
No matter what you do, you must decide whether to do the maintenance yourself or hire a management company. A property management company will take care of things like mowing the lawn and fixing the air conditioner, as well as more complicated things like finding tenants and kicking them out.
A management company will not only help you run your rental properties more efficiently, but you can also deduct their fees from your taxable income in the same way you can write off mortgage interest, property tax, depreciation, repairs, and operating costs. Even though it’s a good thing, keeping track of your money as a landlord is harder.
Some new investors also make the mistake of spending too much on a repair or renovation or taking on too much debt, which cuts into your profit. Some people are in a hurry to buy multiple rental properties before they know everything there is to know about a single investment. The point? As with any big decision, you should take time and learn as much as possible before acting. Buying a rental property is an investment for the long term.
If you want to buy a home as an investment, the best way to get used to being a landlord is to start by regularly renting out the home you live in now. This is a good way to get some experience before buying a house just to rent it out.