What to invest in, tax considerations, and how to do it
1. Location – The better the location the more interest you have, the better rent/sale you can expect to receive. Definitely take the location of an investment property seriously. Your agent will help you determine the right location for your investment.
2. Property Taxes – Find out what the property taxes are in order to accurately estimate your potential cash flow.
3. Cash flow – The answer to why we invest in real estate after all. Evaluating a property’s cash flow is an essential part of the search process. Your agent will work out the cap rate for each potential investment to help you choose your investment wisely.
4. Budget – Understand the full picture of what it will take to invest in real estate. Just like purchasing your home, be sure you are comfortable with the monthly cost of the investment. Be sure to create an comfortable emergency fund for your investment.
5. Thoroughness – Your agent will help you to determine what listings are selling and which areas are moving the most inventory. Be sure to know the area well.
6. Multifamily Properties – Single family homes and individual rental properties are great investments, particularly for the part-time or first-time investor with restricted time or budget. The risk factor is less in multi-family properties since you have multiple sources of revenue to cover expenses and overhead. Follow up with your lender before searching for properties as refinance terms are not the same for single family and multi-family properties.
7. Property Condition – Ever heard the saying “health equals wealth”? If you are looking to procure a cash flow property, get it under lease, and begin your life as a landlord, a clean property in good condition will be your desired property. This is a long term strategy though. Because the property will certainly cost more than a comparatively dilapidated property, it means it will take longer to pay off the financing on the property and get to pure profit (minus expenses).
Buying a dilapidated property will obviously require more of an upfront investment to renovate the property; however, you have a lot more flexibility with the funding for renovations and can keep your mortgage cost lower since the property itself will be significantly less. There are also time delays that come into play during the renovation, but that can also be time spent screening potential tenants and marketing the property.
8. Financing – Before you proceed with any property purchase you need to double check the details of your financing. There are chances of a loan application getting rejected for various reasons. Therefore, make sure to actually secure the qualified information that you are approved before proceeding with any investment negotiation.
Real estate investments can be as simple as you want them to be, but can also be a complete mess of a headache if you don’t take the time to understand the details, clauses, and potential consequences attached to your financing.