Now, more than ever, might be the ideal time to consider your options with investing in property and then renting those properties out. Most would wonder why, in today’s economy, investment properties would be a good bet for a portfolio. In fact, despite what the current economy tells you, the ability to buy these property locations at dirt cheap prices make it worth the risk of looking into it as an additional source of income for you. There are many options regarding investing in real estate. All of the pros and cons need to be considered thoughtfully before putting down the cash needed to get started. The payback can be awesome.
There are two types of investment properties. There is commercial real estate and there is residential real estate. Commercial investment properties is a whole different ball game and not what we are discussing in this context. Residential investment properties can include single family houses all the way to multiplexes with numerous units. These properties can be purchased for a few different reasons. You can purchase investment properties to live there with renters, you can purchase to be an absentee landlord or you can purchase to then “flip” it to make a profit. All three methods are considered investments in real estate or property.
Many consumers will purchase one additional residential house to rent out in order to have an additional stream of income coming in. This is not a bad idea if the amount of the rent is higher than the mortgage payment you are making. If it is lower, you are putting yourself into greater debt and the investment will not be helpful. When you decide to become involved in these types of investment properties, remember that you still are responsible for the upkeep of the major house systems (air, electric, plumbing) and your tenant will be calling you if things break down.
You can also choose to be a land owner because you want to take the property, clean it up a bit and then resell it for a profit. This is a gamble, but if it pays off it can be very lucrative. There are many people who do this for a living. They will partner with a group of handy people, buy a house that needs a bit of work and fix it up. They then split the profit between the group that did all of the fix-up work. Sometimes this type of investment can be very successful but just as often it can backfire, leaving you with a property that won’t sell or won’t sell at a high enough price to get your initial investment back.
For many property owners there is a trade off. The risk of investment properties is real but so is any other type of investing you do. These owners decide what their threshold is in terms of capital that they put into these properties and then wait to see how it works out. If it works out well and they are able to rent the property or resell it for a profit, chances are you will do it again. If it does not make you a profit or ends up costing you money, chances are you will not do it again.
As with any investment, make sure you get guidance. In this case, a housing inspector that knows the systems of the house well enough to save you from any big issues is essential. If you are going to get involved in investment properties, you will want to spend the extra money on the inspections you can have prior to purchasing the property. Very often, this individual will become vital to your success.
You will also want to have a common banker for all of these transactions. The more business you do with them the easier it will be to continue to get financing for these types of properties. And if your first couple are successful, you will also have a money trail to show them which will make your next purchase that much easier.
Make sure you give yourself a budget for how much you are willing to put into property restoration. You will need to be diligent in keeping to it if you are to truly have a profitable experience. It is too easy to underestimate the cost of fixing up your investment properties and this causes great financial distraction.
Investing in real estate is a great way to diversify a portfolio. It is one that needs to be done with great care and a lot of research. Make sure you know the buying or renting habits of the area you are interested in. Also be aware of demand for these types of properties prior to getting involved. If you do all your research and enter into the transaction prepared, you have a good chance of success and profitability.
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