You’ve seen the shows on TV about flipping homes, and you might even know someone who does that for a living. Plus, there’s also the option of investing in a rental property that you can use to generate a steady monthly income. But is investing in property in any way, whether it’s buying and reselling or holding onto a rental property, a good idea? Keep reading to learn more so you can make the right decision before you start looking into mortgage loans.
Real Estate Could Be a Less Risky Form of Investment
A lot of people choose to invest in real estate because it never really loses its value; instead, the opposite is true, as the value of land and property continually goes up. Even when real estate markets crash, they rebound and you will be able to make money provided that you renovate and maintain a modern property that will be attractive to renters and buyers. Compared with stocks, which are volatile and could leave you with nothing, real estate is safer, if you have the funds available to purchase something worthwhile.
Rental Property: Doing It Right
Purchasing a property that you can then rent out could be a great way to generate an income for yourself, but you need to be wise in your decision making if you are going to make this work.
Experts recommend starting with a family home that you can rent out to tenants, rather than diving right into a multi-unit property that might be too much for you to manage without any prior experience. A single-family home will also be less expensive than a condo or townhouse because there won’t be any additional maintenance fees to worry about in addition to your other costs.
Always do your research on the area in which a property is located. You might have looked through some listings and found what looks like a great, modern home at a really low price. But, you should ask yourself why the price is so low, or why the property taxes are so low. Is the house in a desirable area? Is it located near plenty of jobs? Do people want to move there or are more people moving out?
Finally, you need to determine how much you will charge in rent if you want to turn a profit and turn your landlord skills into a business. Once again, researching the area will be imperative, as rent differs from one city to the next. As you come up with the number, don’t just think of covering your mortgage. When considering different mortgage loans, you also need to factor in the cost of maintenance for when things break, and you can even add 5% to maintenance and an additional 5% to cover repairs and downtime between tenants so you can make extra income. The point is that you want to calculate just how much of a return you will get on your investment. If you can’t charge enough rent to make it worthwhile, or you think that your rent would be too high to attract tenants, then you may need to look elsewhere.
Things You Need to Consider First
When you invest in property, whether you are planning on living in it, working in it, or renting it out, there are a few things that you need to consider.
Firstly, you will need to have a sizeable down payment available to comfortably afford the monthly mortgage rate. Then you will need to factor in the costs of renovations and repairs, which are an inevitable part of property ownership, even if you are just a landlord. And on top of that, there are other expenses, such as property taxes, that you need to consider too.
If you aren’t financially ready to make this kind of commitment, investing in property would not be a good business idea, as it could end up causing you to go into the red rather than see the profits that you’re after. It might be wiser to invest in an actual start-up rather than real estate if you want to be your own boss.
There Are Pros and Cons
Ultimately, getting a good mortgage and finding a solid property that you can renovate and resell or rent out to tenants can be a challenge. There are pros and cons that you need to consider if you are thinking about using real estate to run a business. But if you have the funds and the know-how, this could be a great business idea that allows you to reap a high return on your investment and make money for the long term.