Sunday, 17 November 2013

Real Estate Investing: The Financial Ins and Outs

Investing in real estate is fast becoming an ideal way to build financial wealth. This is especially true for individuals who have other jobs and are looking for some type of passive income, either through buying and selling real estate or renting properties for a profit.

However, real estate investing isn’t a sure thing, and if you play your cards wrong, you could end up losing a great deal of money. Before you make any purchases, make sure you understand the ins and outs of the business.

Do You Own Your Home?

Believe it or not, many people look to real estate investments before they actually own a home of their own. If you already own your own home, you can dismiss yourself from that group.

However, if you don’t already own the home you live in – your rent or you’re still making high monthly mortgage payments – buying a property of your own or paying down the mortgage should be considered your first real estate investment. Rather than putting your finances down on something that isn’t a sure thing, such as a piece of property for an investment, the smartest thing to do is to put your money in a place you’ll be staying for awhile.

Chances are your home will increase in value over time, and eventually you’ll have a place to live free and clear with no expenses, except property taxes and maintenance.

Choose Your Area Wisely

When buying real estate, whether you’re planning to rent the property or sell it down the road for a profit, nothing really matters more than where the property is. Buying in the right area greatly increases your profits, and can also make filling the property or finding the right buyer a whole lot easier.

Ideally, you want to look for a property that’s in an area with a fairly low vacancy rate. The fewer properties available in a certain area there are, the more you can potentially charge for yours, as the demand is higher.

However, it should be noted that buying properties in areas with higher vacancy rates can be lucrative as well – as long as you pay less than market value for the property. Over the course of 5 to 10 years, you could see the value of that property go up considerably if the area is on an upswing.

If you do buy in an area with higher vacancy rates, make sure real estate prices rise or expected to rise in the area, and spend the time to find and negotiate a price that will ensure profits.

Are You Going to Rent?

Buying a property and renting it out as a way to pay your mortgage is an old practice that’s been around pretty much since the concept of owning land was developed. For many people, it’s the only way to afford a property, and it can also be one of the best ways to ensure that your investment rises in value.

As you look for a piece of rental property, you need to determine how much your mortgage will be and how much the going rate in the area is for renting similar properties. Remember – you’ll need to cover your mortgage, any upgrades, and the incidentals that will come up – things like plumbing problems, painting, and replacing carpeting. If you’re hiring a property management company to do basic tasks like collect rent and take care of maintenance, consider those fees as well.

There isn’t an exact formula for figuring out how much you need to charge over your mortgage costs, but you need to make sure you don’t short yourself. If you find a property at an exceptionally low cost, you may even be able to make a profit each month over your mortgage costs and expenses.

Either way, your property should increase in value while paying for itself through the tenants that live in it. As your equity increases, branching out and buying other properties in the area is possible.

Real estate is one of the best things a knowledgeable person can buy. However, in an economy that’s still a little unstable, it can also be dangerous, and it is possible to lose your money.

Make sure you do your homework before signing that mortgage. Otherwise, you may end up having to sell for less than you buy the property for if you can’t hang onto it long enough.

Marcela De Vivo is a freelance writer in Southern California. She is passionate about real estate and enjoys giving others advice on the subject. She works with, ensuring others find their perfect home smoothly.

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