Buying rental property can be a risky investment, but it can also be a fun and rewarding experience that best cities in florida adds some cash to your bank account. Before you jump into the job title of "landlord", there are some things you must consider.
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1. Find out if you even qualify for a second mortgage. Know your credit score before you even apply for a loan. You will likely need an excellent credit rating, not just good or ok, to get approved. Another deciding factor is your debt to income ratio. The bank wants to know if you are going to have the funds for this loan.
2. Decide what kind of real estate property you want to purchase. There are a lot of options when deciding to invest in real estate. The scope of it all depends on how aggressive you want to be and how much money you have to spend. Single-family homes, apartments and duplexes, commercial buildings and even vacation rentals are all possibilities.
3. Enlist the help of a real estate agent. She will steer you towards good rental locations and help you determine the market value of the surrounding properties. When you buy rental property, you want to make a profit so the market value of the house should be in-line with or lower than the rest of the houses in order for you to get what you want for rent.
You may not make a lot your first time out, but if you only get the mortgage amount and the management fees, you are still building free equity in the property. That is quite valuable and will allow you to make more down the road.
4. Crunch the numbers. The whole point is to make money right? Once you find a piece of real estate, determine how much it will cost to make any repairs or upgrades, if any, to get it rent ready. Figure in these costs with the mortgage and insurance, what you want for rent and the cost of hiring a manager if necessary to determine if you will be in the black, flat-lined or hemorrhaging money.
Another financial consideration is whether or not you can afford for the place to sit empty and for how long you can afford this. Also, you need to decide if you have back-up funds in case a renter defaults or skips out leaving behind a damaged property. (Screening renters helps reduce your risk of this happening.)
5. Hire a rental manager. This is very important if you do not live near the rental property. You need to hire some who is trustworthy and doesn't take a huge chunk out of your monthly profits to handle issues that may arise with the real estate property.
Buying real estate as a rental property and becoming a landlord carries a lot of responsibility. Even if you hire out the management of the property, you still have to make sure that business is being taken care of and that the renters are happy as well as abiding by the rental agreement. Being an investment property owner can turn into a fun side business or even a full-time job as long as you have the credit and the resources to do it.
Rental property investing has many great benefits. Some are subtle, like the idea of creating financial security. Others are very concrete in dollars and cents. But most are concrete that turn dollars into your bank account.
The most obvious benefit is that someone else is paying your mortgage and building equity for you. If you buy a property that has a positive cash flow and use a good strategy to make sure your vacancy rates are very low, the income from the property will cover your mortgage payments. Over a period of time you build equity with little effort on your part as the loan pays down the principle. This is the easiest method in the world of building wealth and why owning rental property is the number one strategy of most of the worlds wealthiest investors.
A second benefit is that of rental property tax deductions. Owning real estate investments as a business venture allows you to treat many items as business expenses. Shifting some of your expenses for your cell phone, Internet service, auto and even your home is possible with a real estate business. Depreciation "expense" usually allows you to show a "loss" of value when in fact your property may be increasing in value. When you sell, capital gains taxes are often at a lower rate than comparable wage income. Overall, the tax benefits of owning real estate may allow you to live a better lifestyle while showing a lower income.
A third benefit of rental property investing is that it is not very liquid. Now some people see this as a flaw. However, this can be looked at from a different perspective. When stock prices fall rapidly investors are often spooked into selling assets. This is easy to do and stock investors will sell at lowest prices rather than having a long term strategy. If you have a property that is providing positive cash flow, you are not usually tempted to sell if some prices fall. You usually wait it out. Unless you are going through a divorce, you can usually sell your property on your terms.
On the other hand this lack of liquidity often puts desperate people in a bad situation. If a seller has a personal circumstance that forces them to sell, they are often willing to sell properties below market value. This gives you an opportunity to make a large profit at the moment of purchase. Many real estate investors say that "you make your money when you buy" and this is true. Buy property only from motivated sellers and you will surely build your net worth.