Advice About Purchasing Your First Rental Home/Property
(Investment Properties: Part 1 of 5)
Before buying that first piece of rental property it is important that you answer a single question. This question has nothing to do with your credit score, your experience with real estate or how much money you can gather for the purchase. The question is quite simple: WHY are you buying an investment home?
The answer to this question will guide you towards the right kind of property and the right type of financing. Let’s look at some examples to get a better idea of reasons people use to start investing in homes.
Saving for College Tuition
This type of goal usually involves a term over a few years. Couples with young children will buy a home in an area that has shown signs of appreciating. A year or two before the child enters college the family will sell the home and use the profit to pay for tuition, books and other expenses.
In this particular scenario the couple is not concerned with making a large profit each month on the rent. They simply want to break even while keeping the home in tip-top shape to maximize the potential appreciation.
Using Cash Flow to Increase Monthly Income
Some individuals invest in rental homes because they want to earn a profit each month from the rent. In these cases it is extremely important to buy a home either for all cash or at a deep discount from the market price. Foreclosures and vacant homes are common for this example. Buying the home for cash or at a deep discount allows the landlord to charge a fair rent based on the current market conditions and pocket most of the money each month as profit.
Speculation about Future Values
Sometimes people simply buy a property at a slightly discounted price in hopes that the property value will escalate quickly due to a future event. For instance, a new shopping mall, new school or a new factory can greatly improve the value of homes in the immediate area. Buying a home in such a location and holding on to it for a few months to a year can yield a high profit.
Some people want to begin their property investment as a means to escape their current full time job and start a new career. It is possible for people to invest in real estate as their main source of income. However, it is not a get rich quick scheme.
The most successful investors have clear goals and follow a proven formula. They buy homes in particular areas that exhibit desirable qualities. They only buy when the price is discounted heavily and they have favorable financing for the transaction. They also understand the rental rates for the area in comparison to the financing costs.
Buying a rental home can be lucrative and lead to good fortune. However, it must be approached with diligence and hard work, not pie-in-the-sky dreams.
Investment/Rental Properties (5 Part Series)