Real estate is a great investment option. It can generate an ongoing income source. It can also rise in value overtime and prove a good investment in the cash value of the home or land that you buy. You may use it as a part of your overall strategy to begin building wealth. However, you need to be sure that you are ready to begin investing in real estate. Unlike other investments, you will need to spend money to maintain and care for your property in order for it to continue to provide a source of income.
Additionally, there may be income gaps if you are between tenants for a time. I
Try to Invest by Paying with Cash
Many advisers warn against borrowing money to purchase investments. You should consider this before you purchase a home that you plan on renting out. The best way to do this is to save up and pay cash for the home. At the very least, you need to be able to afford the payments on the property when the property is vacant, otherwise the property may end up being a burden instead of helping to build wealth. You should never just rely on the rent covering your mortgage. You will have turn overs in renters, and some may not pay on time. Your credit would be damaged if you did this. It can also take years for the profit to turn profitably instead of just breaking even if you use a loan to purchase the property.
Plan Out All of Your Expenses Before You Buy the Property
When purchasing real estate as an investment, you need to consider the cost of taxes and the way that you plan on renting it out.
Often it is easy to go through a rental company and contract through them for repairs and rent collection. This takes away part of the burden of caring for your property, but it will also cost you money. When you are the landlord, you are responsible when things go wrong. A rental agency acts at the middle man and schedules repairs and deals with the tenants for you. If you do not have time to do everything your property needs done, using an agency is a good option.
You need to price your rental property so that all of these fees and other expenses are fully covered. Additionally, you should take the first few months of surplus money and set it aside to cover the cost of repairs on the property. You should carry good insurance on the property and be prepared to deal with additional costs and other situations as they arise. You need a sinking fund for the property. If you direct the rent into that account, you will build up a good reserve quickly.
Research the Property Carefully
If you are purchasing land that you plan to sell at a later date, you need to research the land deed thoroughly. Find out if any roads are planned close to the land you purchase and consider how that will affect the property value. At times it will help make the land more valuable, at other times it will decrease the value. Once you have done the research, you should be able to make the correct decision about purchasing it for investment. This is similar to speculation and it comes with a higher risk of not being able to earn a return on the investment. Things may change and the area you thought would increase in value may not actually go up.
Some real estate investors begin by purchasing a duplex or a house with a basement apartment. This is a good way to get your feet wet, but you will be living in the same building as your tenant. When you set up your budget, you will want make sure you can cover the entire mortgage and still live comfortably without the additional rent payments coming in. You will need to make sure the building is completely up to code before you begin renting it out. You may opt to handle the entire process yourself or you may want to go with a company that handles the rentals for you. Just be sure to keep that in mind as you handle your costs. As you become more comfortable with being a landlord, you can begin to purchase more properties and build a steady flow of income. Once you have several properties, it becomes easier to purchase and manage more properties.