There’s no reason amateur real
estate investors can’t profit from small, individual property
purchases. As home values currently rising 3.9 percent
year-over-year, and expected to rise another 2.6 percent over the
next year, why not allocate some of your savings toward real estate?
To get started off on the right foot, you’ll need to make some
decisions. Follow these steps prior to entering the real estate
market.
Evaluate your Current Finances
In general, experts advise buyers
put down at least 20 percent of a home’s purchase price. But to
avoid being responsible for two mortgages, many investors wait until
they can pay for real estate outright.
If you do need a mortgage, you might
consider living in your investment property to take advantage of
owner-occupant rates. You don’t have to live there forever, either.
Lenders typically require just one year of residency to lock in the
lower rate for the remainder of the mortgage. Owner-occupied interest
rates are much more favorable than secondary home or rental property
loans.
For those fortunate enough to
purchase multiple income properties simultaneously, it’s important
to choose the right financing. Experts recommend that an individual
can leverage his investment capital using cheap 30-year fixed-rate
mortgages and buy as many income-producing properties as possible.
This is how you can accelerate your wealth-building with the turnkey
properties.
Determine the potential Cash Flow
House flipping (means purchasing a
property and then quickly reselling it) can help you make quick
profits that look easy. But most homeowners don’t profit when they
sell shortly after closing. Of course, extensive renovation on a
flipped home increases the potential for short-term profit, but
bigger upgrades costs a lot of money. Unless you’re capable or
experienced in large-scale home improvements, don’t assume you can
flip a house by yourself to benefit immediately.
Renting out the property, on the
other hand, is more of a long-term strategy. Pricing requires some
serious calculations to attract the largest number of possible
tenants, while still covering the mortgage and homeownership costs.
Although you’ll aim for profit in the beginning, the real money
usually flows in after the mortgage is paid.
Experts suggests that in order to
compute your expected cash flows in case you have decided to rent out
the house in which you are already living in, add up expenses related
to the house like the mortgage you are currently paying for it,
insurance premium, tax payments and amount spend on the repair &
maintenance of the house annually. Then subtract the figure so
calculated from the expected income by renting of House Property and
then, if you are left out with some cash in hand, it would be a
feasible decision to let out the property, but if the final numbers
are close to zero, then you might have to rethink your decision to
let out.
Today’s rental market is
notoriously expensive, and competition among lessees is high. Even if
you’re not looking to be a landlord long-term, it could be
financially wise to rent out your unit at least until median sale
prices in the region peak.
Choose your Investment Type
Many investors default to
considering individual direct ownership as their only way to profit
from real estate. However, partnerships (both close and limited) and
publicly-traded investment trusts are designed to help investors who
might not have the time, or the skills, to run real estate
investments on their own. Real estate investment trusts, on the other
hand, enable investors to fund multiple projects simultaneously
without the hassle of day-to-day management.
Unsurprisingly, your financial
capabilities, estimated profit margins and choice of investment are
all interconnected. Whether you’re starting out with some Lacs or
Crores, staying informed in the real estate industry — even as a
passive investor — is a key to success.
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