Investment Property Loans
Where and how to invest your money is always a big decision, especially in an unpredictable economy. Investment property has long been a staple in the financial community and considered by some experts as a "solid" investment when approached correctly. However, to many first-time investors, putting your savings into real estate can be intimidating. Let's take a look at some things you should consider before investing in any property.
How "Invested" in Your Investment Do You Want to Be?
There are many different types of properties in which to invest: rental houses, condominiums, apartment buildings, commercial properties, and more. Whatever type of property you choose, there are generally two ways to invest: short-term or long-term. Each has its own potential benefits and risks, and each requires different levels of commitment.
This is also known as "flipping," a term that refers to the practice of buying a house, fixing it up, and selling it for a quick profit. Successful flipping is highly dependent on market conditions and knowing what to look for when those conditions are right. If you're considering flipping to invest, it's important to be sure that you have enough cash in reserve to hold you over should your "quick turnaround" extend into a long-term investment. In addition, be aware that flipping for a quick profit has left some investors owing more on their loans than their homes are worth when economic conditions cause overall property values to decrease. Often, when home values drop, so does the opportunity to flip for profit.
When interest rates and housing prices are at low levels, some may choose to invest in property for the long run, anticipating steady growth in their investment over the long term. For an investor who has the means to pay the additional mortgage, taxes, insurance, repairs, and maintenance on a property over the long term, the returns could help secure their financial well-being.
A common approach to long-term investing is to purchase an income-producing property such as a single-family home, an apartment building, or an office, with the intent to rent it out. If rents exceed property ownership costs, this can also provide an additional source of income while the property hopefully appreciates over time. If you are thinking of investing in a rental property, it's a good idea to have a cushion of savings, because the property may go unrented for stretches of time. So even if you're able to cover the cost of the mortgage with the rent you receive, you should be prepared to pay the full mortgage if the property becomes vacant.
Are You Ready to Be a Landlord?
If you've decided on a long-term investment property, you will become a landlord. It's a big commitment, so there are a few things you'll want to know:
Rules and regulations. Protect your investment; know the rules. Building codes, fair housing regulations, tenants' rights…there are a lot of rules for renting out a property and the fines for noncompliance can be steep. Many of these rules vary by region, so doing a little research is a smart move. One place to start is on the U.S. Department of Housing and Urban Development's website, www.hud.gov. You might also consider reading books regarding how to become a landlord and/or consulting with a local real estate attorney.
Rental agreements. To protect your investment when you rent it out, a rental agreement should be signed by both you and your tenant. A rental agreement is a contract that identifies both parties (you and your renter), the property, the terms of the rental, and the amount of rent you want for the use of the space. Be sure to spell out any special requirements you might have. Consulting a real estate attorney for assistance may be a good idea, especially for first-time landlords.
Screening tenants. It's smart to screen potential renters very thoroughly to make sure they have a good history of paying their rent on time. Pull their credit history, contact previous landlords, and check their employment history to make sure they can afford the monthly payments.
Expect the unexpected. Having cash reserves on hand is one of the best ways to protect your investment. Just as with your own home, unexpected expenses may pop up at any time. But as a landlord, you won't have the luxury of putting off repairs until you can better afford them.
Homeowner Tip: You may find it worthwhile to consult with an attorney to be sure you're fully briefed on your local laws and have the proper forms. Or, you may opt to hire a property management company to take care of the day-to-day needs of tenants, trading off some of the potential profits for less hands-on responsibility.
As with any investment, the best approach to investing in property is to do your homework. Get your finances in order, be clear on all the costs involved, and get preapproval so that you will know what type of property you can fit into your budget. And be aware that there are tax implications to be considered. Before you buy, consult with a tax professional to make sure you understand everything that's involved.
If you think you're ready to take on the challenges and reap the benefits of investment properties, contact me directly for a consultation. Together we can run the numbers to see if this is the kind of investment that could help you reach your financial goals.