In recent years, real estate has become one of the soundest investment options available. While it’s not without its risks, real estate tends to offer some of the most significant returns while also growing steadily over time.
If you already own a family home but you’re thinking about investing in a rental property or two, you’ll soon realize how much there is to learn. The following information is a great place to start:
It’s Okay to Ask for Help
When you purchased your family home, you likely relied on a few experts, such as a mortgage broker, a banker, and a real estate agent. When you start considering investment properties, a property investment advisor can be an excellent source of information.
Their job is to guide you through the property market, answer any questions you might have, and provide honest and transparent advice aimed at giving you the best chance of finding property market success.
There’s no harm in requesting help from other industry experts as well. For example, a builder can tell you whether a property requires too much work to be worth your time.
Understand Your Operating Expenses
There can be more involved in property investment than simply paying the asking price for the property and then receiving rental payments each month.
You must also consider your monthly mortgage payments, taxes, repairs, and general operating expenses. Many investors operate on the 50% rule. This means you can expect to sink half as much as you earn on a property into operational costs.
There’s Important Tax Information to Consider
Real estate can be a lucrative investment for many people, particularly those who understand their tax obligations. You may not realize it, but real estate investment has many incredible tax benefits.
You can recover some of the costs of your income-producing property through deprecation and borrow against equity for other property purchases. You may also be able to use 1031 exchanges to defer profits from your investments. Engage a qualified tax agent to ensure you’re making the most of these potential benefits.
Interest Rates on Investment Properties Differ
Traditional home mortgage rates in the US fluctuate between 1.99% and 6%, depending on your preferred mortgage type. These rates can change throughout the year, but typically not by much.
Investment property interest rates are generally structured differently and can often be much higher. When deciding whether you’re financially ready to purchase an investment property, it’s worth performing mortgage calculations using the most up-to-date investment property rates rather than typical home lending rates.
Understand the Landlord-Tenant Laws
Before you jump into the world of property investment, ensure you’ve done your homework around landlord-tenant relationships. Learn your rights, those of your tenants, and the different lease types that may suit your needs (such as term, periodic, tenancy at will, and tenancy at sufferance). The more you learn, the more straightforward and stress-free your landlord experience should be.
Risks and Rewards
Like all investment types, real estate comes with its own unique risks and rewards. Your chosen property advisor can walk you through the different things to expect when you become an investor.
Some of the rewards include passive income and rising value, while risks can be things like high entry and exit costs and potential net investment income taxes. Weigh these up before deciding on your next steps.
Real estate investment is a popular investment option for many reasons, but that doesn’t mean you can jump right in without a second thought. Consider the risks, talk to the experts, and do your homework before signing on the dotted line.