You must have heard people say that real estate investment is quite profiting and sound. There are several wealthy people to support this fact, as most of them will have some sort of real estate investment company.
However, it is true that just like any other type of investment, it is always better to be well-aware about the pros and cons of real estate investment before diving in with your hard-earned money. If you do not pay heed to the pros and cons of real estate investments and prefer to invest blindly, you may have to regret in the long run.
Tips for Buying Your First Rental Property
Talk to some real estate experts and you will be given some essential tips that can help you get a better picture of such investment options. Some of these tips are mentioned below for your knowledge.
- Ensure It Is Meant for You: If you are given a tool box, all of a sudden, and asked to make a dog house, will you be able to do it? Similarly, investing in real estate is not meant for every person. It is important for you to remember that if you do not have plenty of spare money, being a landlord will be a bad idea for you.
- Clear Out Your Debts First: Even before you decide to buy a rental property, it is always a good idea to clear out your immediate debts first. Although savvy investors will carry their debt as art of their vast investment portfolio, for an average investor this may prove to be a bad idea. If you have kids who will soon go to college or if you have unpaid medical bills, it is better to clear them out before even thinking about going for a rental property.
- Manage The Down Payment: It is good for you to know that any type of investment property will require a bigger down payment as compared to any owner-occupied property. Thus, they normally have a strict approval requirement. Remember that the 3% that you put on the property you presently live in will not be sufficient for any investment property. You will need to have a minimum of 20%, since mortgage insurance is not available on any rental property.
- Keep The Higher Interest Rates In Mind: It is true that the cost of borrowing money is slightly cheaper these days. However, the interest rate on any investment property will be much higher than any traditional mortgage interest rates. You need to have a low mortgage payment so that it does not consume much of your monthly profits.
- Calculate The Margins: A Wall Street firm that purchases distressed properties always aim for around 5% to 7% of returns, since they also have to pay their staffs. On the other hand, an individual should always set a goal of around 10% out of which an estimate 1% of the property value will go towards the maintenance costs of the property on an annual basis.