Investing in Real Estate - Is there really a lot of money to be made by buying and selling houses? Can I make a lot of money by buying houses and renting them out? What are the best types of houses to buy for rental properties? Should I buy a single family home, a duplex or possibly even a 3-4 unit property? Are there any differences for financing a 1 unit versus a 2 unit home or a 1 unit versus a 3-4 unit home? How do I get started with investing in real estate? Should I go to my local bank or work with a mortgage broker?
These are just samples of some of the very common questions asked by consumers looking or considering getting into real estate investing. With real estate investing you really need to put in a good amount of time and do your homework on the properties that you are considering buying. The better the deal you can find the more money you will be able to make on the property. If you jump into buying an investment property without doing your homework, you can actually end up losing money instead of making money. For example, lets say you buy a home that needs some work. You figure out that you will need only roughly $5,000 to get all of the work done and you will be able to sell the property for a $30,000 profit after the work is completed. Once you start doing the work, it ends up costing you $18,000 instead of the initial five thousand you were thinking and you went way over budget. Now you are ready to sell the house and you discover that what you thought you could sell it for is actually much less than what you had planned. Homes in the area might have been going for the price you thought you could get however, you may have forgot to take in account that those more expensive homes had garages and basements and your home does not. Therefore, this is just one simple example of some things that could go wrong with an investment property and that is why you must do your research on the neighborhoods, on the houses themselves and maybe even bring a contractor into the home to get an accurate idea of how much it might cost to fix the homes up. If you buy investment properties the right way and research everything carefully, buying investment homes can be a very profitable and rewarding experience. It can also help to put you in a much better financial situation for retirement.
Consult a mortgage broker to find out what your financing options are when buying an investment property as they will have the biggest array of mortgage programs available for you to use. Also, a good mortgage broker may be able to help you do some of the research on the property you are looking to buy.
One of the basic success principles with Investing in Real Estate is that you be able to cover your PITI payment with a Rental Payment.
There are several factors that will determine if your real estate investment will have a Return on Investment (ROI). Discuss your plans with your real estate agent, mortgage broker, certified public accountant and financial planner before you start.
It will be helpful to remember real estate is a "long term" investment. Short term fluctuations should not affect an over-all investment strategy when you estimate the length of ownership to be within a realistic time frame.
Real Estate investments can be negatively or positively "geared".
A positively geared investment property will throw off positive cash flow every month, meaning the rental income is greater than the cost of ownership, and is used by investors seeking to generate income through their properties. Many first time investors are seeking positively geared opportunities.
A negatively geared investment is when the cost of ownership is higher than the rental income, producing losses every month. You may ask why anyone would want to lose money in real estate, however this is a very popular tool for individuals who want to offset their income or capital gains with running losses from a real estate business for the purposes of gaining tax deductions (remember mortgage interest is generall deductible, as are operating losses). And because the negatively geared investor also owns the property, they still enjoy one of the most important benefits of ownership, capital appreciation, or the increase in valueof the home over the time they hold it.
Investing in Real Estate takes careful planning to be successful. There are many ways to invest in real estate. Every segment of real estate investing has its own benefits and pitfalls that need to be carefully examined.
Make sure you have an exit strategy for your property once it's complete. Due to many lenders' anti-flipping rules, it can be hard to sell a property within the first 90 days for more than you paid for it.
Depending on your investment strategy, whether to buy and rent or to flip, you will need suitable financing. An experienced mortgage broker can often guide you through different mortgage loan programs that are designed for various investment purposes. Using a wrong mortgage for the right property can be costly. A mortgage with a "pre-payment penalty" should never be used for a property that is to be sold in a short period of time, because it can add to the financing costs.
One popular mortgage choice for serious investors is the pay option ARM. The pay option ARM has various payment choices which may be useful for investors with sporadic income. The minimal payment is especially interesting for investors because only part of the interest portion is required. The lower payment means increased cash flow for other investments. Any unpaid interest is deferred and actually increases principle balance.
Don't forget the importance of working with a Realtor you trust when searching for suitable investment properties.
There are a lot of reasons to invest in real estate, especially a home that you use as a primary residence. The tax code provides homeowners with some of the biggest tax breaks around. If you use a mortgage to buy your home, you leverage your investment, putting up a little of your own money to make a major purchase, and increasing your ownership share of the property as you pay the loan off. Best of all, real estate is an investment you can live in.
Many investors in this market are suffering from negative cash flow and a decling market. The old adtage, "sell when everyone esle is buying and buy when everyone else is selling" will serve you well no matter what investment you pick. Making sure you cover your PITI payment with a renter will ultimately insure your success. Most sucessful investors make money on the sale and not the holding period.
If you decide to invest in real estate it is a good idea to work with a realtor who specializes in investment properties. Often time they will be able to offer valuable insight on properties and spot potential problems or benefits to a particular property. Another great resource is a local real estate investing club. The club meetings are a great place to network with other investors and ask them questions and learn from their experience's!
Investing in real estate can garner interesting returns, so if you're just getting started or have considered investing in real estate, the information above is invaluable.
Financing for Real Estate Investors - Owning investment property is a smart choice in todays real estate market. 100% financing programs are available for investors, it usually carries a slightly higher interest rate than owner occupied properties. You can generally purchase 1-4 unit residential real estate with those programs. Any other property type, or requires a commercial loan.
When contemplating an investment property purchase, it is important to account for periods of time when the property will remain unrented, and to have sufficient financial capacity to be able to cover the mortgage payments onthis property even when it becomes unoccupied.
Investing in real estate does take some time and education to do it wisely. You must make sure that if you are buying "fixer-uppers" that you understand what you are getting yourself into before jumping into them. You don't want to end up buying a home that is going to cost more to fix up because of unseen problems than it is worth. If you are going to buy investment properties that are in average to above average condition at the time of the sales you need to make sure you know how much rent is going for in the area, how much rent you would need to get on a monthly basis so you are not losing money, and you need to calculate in for unexpected expenses. There are many times that a water heater may go, the furnace breaks down, a plumbing leak occurs, etc... and these figures need to be accounted and planned for accordingly. There is a great deal to make when becoming involved in buying investment properties, however caution and proper planning is highly advised.
