The purchase of real estate for profit can be a lucrative part-time venture for an individual who can’t afford to walk away from a full-time occupation. if you take the time to research the market, hire the right experts to help you, and have a bit of patience, this real estate investing could eliminate the need for that full-time job. A new investor must, however, consider all factors before getting started in real estate.
A Would-be Investor has Three Real Estate Investment Options:
- Purchase of a primary residence:
While not always thought of as real estate investing, the single-family home, condo, or townhouse in which an individual or family resides nearly always appreciates. In other words, the market value of the property typically increases beyond the owner / occupier’s purchase price. Its equity (resale value minus mortgage balance) can be used to acquire more property. Additionally, the greater the home’s equity, the better the chances of securing another loan to purchase another property, or to upgrade the primary property for lucrative resale. increased equity also improves interest rates on the new loan.
- Purchase of rental property.
While risk-averse individuals might shy from rental property, the good news is that where the property to stay empty for any period of time, or if the monthly rental fee were not to exceed the owner’s mortgage payment, the loss might well provide a tax break. Before considering the purchase of a particular property you must accurately assess all costs of the purchase, upkeep and other ongoing expenses, as well as the monthly rent you can reasonably expect.
Beyond the mortgage payments for the rental property, the owner must factor in numerous costs. While some are optional, most of the following must be considered as the cost of doing business:
- property taxes,
- Liability and homeowners insurance
- Homeowners Association (HOA) fees
- Cleaning, repair and maintenance before and after move-in
- Repair of fixtures and appliances included in the housing commitment to the renter.
- Attorney fees, for rental agreements, and litigious action such as evictions
- Water and sewer bills, more common with multi-unit than single-family rental properties.
- Background and credit check for each rental applicant, although you can perhaps require the applicant to bear all or part of this expense.
- Property Management Company fees. If purchasing rental property in a geographic location other than your home city, or if you’re unable to deal with renters firsthand, you’ll need to hire a property manager.This company will typically accept applications, process background and credit checks, and collect rental fees.
- Flipping – At its simplest:
Flipping is the practice of buying a property solely for the purpose of selling it at a profit. The sale might be more lucrative with the right renovation, and the experts at Essendon & Mooney can guide you through this home renovations decision. A flipped house typically has had no occupant between the times of purchase and its subsequent sale. Check out these real estate investment tips on flipping.
Getting Started in Real Estate
Before deciding to invest in real estate, there are experts you should rely on, and factors to consider.
- Carefully study the market:
What are similar properties in the same area selling for? What are their rental fees? Are economic and real estate experts predicting an appreciation of area properties, and if so, in what timeframe and by what percent of increase?
- Assess your creditworthiness:
If your less than stellar credit score, or your lack of equity in the property you would use as collateral, would result in a high interest rate on any mortgage, you might do well to pay down your bills and improve that credit score before buying property.
- Factor in all costs:
If, for example, you (or your accounting professional) determines that a particular rental property will be profitable only if it is renter-occupied all twelve months of the year, and only if no fixture or appliance needs to be repaired or replaced, it might well be a less than wise decision.
- Hire a tax expert:
A real estate tax professional can tell you, among other things, under which circumstances a loss on a real estate property will provide a tax break that still makes the purchase a financially wise investment. He or she can also prepare the documents needed to take advantage of all real estate tax breaks. Do study these tax strategy tips.
- Hire a real estate / rental attorney:
Skimping on your legal protection is a poor idea. The right attorney can draw up your airtight rental agreement, and advise you on the most timely and legal processes for eviction. They can draw up purchase agreements and mortgage documents, or review those drawn up by the other party, and can prepare title and transfer papers. If you’re new to real estate, and / or you do not have a long-standing relationship with the real estate agent involved, you would be wise to have your real estate attorney guide you through your property closing.
- Assess your risk aversion:
If you’re only comfortable with a “sure thing” – that is, if the first few years, when costs might exceed rental fees, would cause you undue stress, perhaps real estate investing is not for you. Risk aversion is a factor not just of personality but as well of financial situation and age. A 20-something who buys his first real estate investment property but then finds that the local real estate market is undergoing a recession, can be comforted by the knowledge that he has plenty of years to wait out the recession, in hopes that property values will rise again. A baby boomer, on the other hand, is surely going to be looking for, and need, a quicker profit.
Real estate investing can be exciting and lucrative, but the investor must first study the market, hire the right experts, and accept that profit is almost assuredly not immediate.
SOURCE: Mark Machaalani , Unified Lawyers