For many cities and areas around the country, real estate is an excellent investment as real estate markets continue to grow. Investment properties are a great way of taking advantage of competitive real estate markets, and with more renters in the U.S. than any time since 1965 (according to the Pew Research Center, as of 2016, 36.6 percent of household heads rented their home), investment properties are not only a great way to grow wealth, they're a sound investment for anyone considering the investment real estate world. With any type of real estate transaction there are a number of questions, and below are some of the most common FAQs regarding investment properties.
How do I Find a Profitable Property
Finding the property that's going to fit your needs and wants
in an income property begins with determining what kind of income property
you'd like to own. Are you going the traditional route, where the property will
be rented full-time, month-to-month or via a lease? Are you more interested in
a home that will be used via a house rental program, like Airbnb or VRBO? Are
you interested in a multi-family property, where there are multiple units
within one property? Once the type of property is determined, the next step is
to look. As your real estate agent, I am the best resource and will be able to
find properties that fit your needs and wants. And remember, finding a location
that is popular and sought-after is just as important as the property itself.
How do I Determine if it’s a worthwhile Investment?
The main indicator of whether a property will be a worthwhile
investment is its potential cash flow. Cash flow, in the most basic sense, is
the property's rental income minus monthly expenses. Positive cash flow means
the property produces income each month or rental period; negative cash flow
means there is not enough income to offset the expenses. With an investment
property, you'll need to consider how many items influence positive cash flow:
insurance, property tax payments, vacancies, general maintenance, upkeep of the
property's major systems, and if there is a mortgage payment on the property.
If the property is going to require a lot of repairs and monthly maintenance,
there might not be a positive cash flow for some time. If the property won't
require a lot of maintenance and is in a desirable location, it could have a
positive cash flow in just a couple of months.
How do I Finance it?
Financing an investment property is similar to financing a
regular home. The most common way to finance is through a bank loan. There are
loans available specifically for investment properties, which can cover many
different types of income or investment properties: multi-family properties,
vacation homes and more. It's important to note that mortgage insurance won't
cover investment properties, so if you're going the mortgage loan route you'll
need to put at least 20 percent down to secure traditional financing. Credit
score and income are also important when it comes to securing financing, and for
some lenders, securing a loan will require two years of landlord experience.
Is An Agent Necessary?
Using an agent is an excellent idea, especially when you
consider all an agent offers and can help with. An agent will often be the
first to know of an available property as s/he helps with property searches;
s/he will look into the different markets, work with inspectors and appraisers,
aid in negotiations and much more. A real estate agent is trained to do the
dirty work - and unless you are self-employed or have a decent amount of time
to dedicate to searching for real estate and all the paperwork that comes along
with it, using an agent will make the entire process more enjoyable and easier
to navigate versus going it alone.
Are There Any Benefits?
There are
a number of benefits of investment or income properties: if you own the
property long-term, you have the possibility of seeing a significant
appreciation in property value and equity growth. For rental properties, there
are a number of tax deductions that landlords can take advantage of that cover
things like interest, depreciation, repairs, local travel, long distance
travel, employees and independent contractors, casualty and theft losses,
insurance premiums and many more. It's important to note that a trained tax
professional with experience in investment properties will be able to provide
additional information on the tax benefits and deductions available to income
property owners. There is also the potential benefit of leveraging your
investment. As an example, if you purchase a property worth $300,000 with 20%
($60,000) down, when that property appreciates in value to $330,000, your
$60,000 investment just appreciated 50 percent!
I am a realtor working in South Florida. If you need help buying or selling a home, please contact me. Also, please view my website where you will also be able to search the MLS.
