In today’s economy, diversifying investments makes financial sense. That’s one reason I encourage my marketing students to consider investment real estate. With real estate, you bring in an income while providing someone with the perfect place to live. Whether you buy a double house, live in half and rent the other side or keep your old home and rent it out after you move, take time to understand investment real estate before you take the plunge.
Almost Any Real Estate Qualifies as an Investment
You already know that your primary residence is an investment. That’s why you pay to maintain and repair it regularly. Other property you buy can also appreciate over time and earn current income, cash you don’t have to work for.
Possible types of investment property that are commonly purchased include single family homes, apartment buildings, condominiums and vacation homes. If you’re experienced with residential options, commercial property, strip malls and land development await your investment expertise.
Take Your Time When Choosing an Investment Property
All the factors that determine which primary residence you buy also guide your rental property purchase. You start by choosing real estate in a popular and desirable location. Next, obtain a professional real estate inspection to determine the condition and needed repairs of the rental property. The cost and your ability to finance the property must also be considered as you choose an investment property.
Wisely Choose Financing
The purpose of investing in real estate is to make money, so shop around for the best financing options. Always consult a trusted real estate agent before making a deal, and determine whether the cost of the property is on par with nearby properties.
Then, don’t take on a higher monthly mortgage payment than you can comfortably afford should your property sit empty for a few months. Likewise, consider any repairs or upgrades required before the property is ready for rental. Always insist on obtaining a fixed-rate rather than an adjustable-rate loan so that your monthly payments are predictable.
Factor Insurance Into the Total Cost
Ideally, your tenants should purchase rental insurance to cover their possessions. As the property owner, however, you’ll need insurance to cover damages to the house. You’ll also be responsible for ensuring the property meets applicable government codes. Take the time to discuss your responsibilities with a lawyer, read more about the types of insurance you need and follow federal and state laws to prevent negligence charges or an expensive liability lawsuit.
Budget for Unexpected Expenses
A variety of problems can hit your wallet hard when you own investment real estate. The structure, foundation, roof, HVAC system and landscaping are just a few areas that may need attention. Factor in these expenses when determining how much you have to spend on a property because you don’t want to overextend yourself and be unable to pay for needed repairs.
Vet Tenants Carefully
I’ve lived in countries all over the world, and I know the challenge of both being and finding a reliable tenant. As you choose tenants for your investment property, run credit checks , call references and use only legal leases. These steps protect your property and income while ensuring you entrust your investment to someone reputable.
Whether you buy a single-family home or an apartment complex, real estate can be a good investment. I highly recommend investment real estate, but make sure you investigate your options and find the property that works best for you before you take the plunge.
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