If you're thinking about investing in real estate, you've made a good decision. If you're interested in investing in rental properties, you've made an even better decision. Real estate is one of the strongest and most stable investments available. Real estate properties appreciate over time, just like stocks, but the beauty of real estate properties is that you can do other things with them while you're waiting. If you already have somewhere else to live, then one of the best ways to use your new real estate property is as a rental property. Here are a few reasons that investment rental properties are so great, as well as a couple of ways to finance your new property.
They pay for themselves
One of the greatest things about rental properties is that, since you have rent coming in every month, you will be able to pay off at least most of the expenses on the property, without having to pull much out of your own pocket. If you're lucky, and a strong investor, you may even end up with a little left over. For example, if you purchase a rental property for which you can charge $800 per month, but you're able to keep the mortgage as low as $600 a month, even after, say, $150 in taxes and insurance, you're still making $50 per month, as early as the first month after you buy it.
Passive income is great because, once you get it set up, you receive income without having to do work. Investment rental properties are one of the best examples of passive income. It will take some work to complete the process of buying and renting out the property, and then it might take a little while to pay it off, but once the mortgage is paid, you keep collecting checks every month, without having to do very much, especially if you hire a management company.
Finding cheaper properties
Although any average real estate property is likely to be profitable in the long run, you'll be able to make even more profit if you are able to find less expensive properties. One trick is to look for properties that are priced at a large discount due to cosmetic issues. Sometimes, you can pick up one of these properties for a few thousand dollars, restore it to its original value by painting, mowing, and generally cleaning up the place. Once you finish, you'll have to resist the urge to sell it at a profit. Remind yourself how much you'll bring in through rent over the next 30 years.
How to finance
Often, the hardest part of acquiring real estate is finding the cash to pay for it. Of course, you can try a traditional bank, but they force you to jump through so many hoops, and then don't seem to be able to bend at all if you come up a little short. You can try to pay in cash, but remember, the less expensive properties will probably need renovations. That almost always ends up being more expensive than expected, and it would also have to come out of your pocket. If you run out of money, the property might become useless. In many cases, the best option is a short-term loan. These loans tend to be much more flexible and accepting than the traditional loan. Also, if you choose to buy a property that requires renovations, a short-term loan will often also provide funds for that. It's a great way to get into real estate with almost no cash up front.
Are you thinking about buying an investment property, or trying to figure out how to finance one? Contact us. We can answer all of your questions, and get you headed in the direction you want to go.
Center Street communications are not intended to provide business, legal, tax, investment or insurance advice. No Center Street communication should be construed as a recommendation for any business or investment strategy by Center Street or any third party. You are solely responsible for determining whether any investment, investment strategy, business strategy or related transaction is appropriate for you based on your personal investment objectives, financial circumstances and risk tolerance. You should consult your legal or tax professional regarding your specific situation.