A property is a fantastic source of income. The great thing about investing in real estate is that it never dries up and it provides you with an ongoing source of income. On top of this, your property will most likely appreciate over time and this means that it is ideal if you want to retire, or if you want a solid investment that will keep on giving. There are also tax benefits as well. You can deduct for every expense you have, whether it is your mortgage interest or even your maintenance costs. The problem is that with all of these advantages, comes some downsides. Every property you invest in will require a substantial cash investment and you will also need a good amount of time to dedicate to your property too.
Get your Numbers Right
The most common mistake that people tend to make is that they miscalculate values, rent and costs. If you don’t take anything else from this guide, then make sure that you take note of this next point. You need to know how to calculate your cash flow because this is how most investors lose money. When you flip houses, or when you buy a rental property with the hopes of renovating it, you need to know exactly how much the repairs are going to cost. This may sound easy on the surface, after all, a contractor will normally give you a written quote. The issue here is that contractors can be difficult to work with and renovations won’t often go as planned. Some contractors will over-promise and they will under-deliver. This is especially the case with deadlines and prices. If you want to make your first investment, then make sure that you are choosing a property that requires only minor cosmetic repairs. When you have done this, budget a cost overrun so that you can prepare for any hiccups that might come your way. You have to make sure that you get around three quotes from contractors who are licensed and you also need to be clear about the repairs you want as well. Don’t forget the costs that you pay for your renovation is just the start. It costs money to own the property as it sits vacant and this will carry soft costs. This can include your permit, your insurance, tax and utilities.
Your After-Repair Value
New investors tend to underestimate costs, but they also overestimate the after-repair value of their property as well. If you want to get the best result here then it helps to use a site so that you can look up the renovated value of a property, when compared to one that has not been renovated at all. When you go through them, you will then get a good idea of how completed properties are priced in the general neighbourhood. If you are a novice investor, then it is vital to know that your opinion alone isn’t enough. It’s helpful to ask the real estate agent for their opinion as well. When you do, you can then ask an investor what they think. When you have all three opinions, you can then find out if your gut instinct is right, or if there is anything else that you need to be aware of.
Your After-Repair Rent
If you are choosing to keep the property for rental purposes, then you need to have an accurate estimate for the after-repair rent. If you are local, then make sure that you take a walk through the neighbourhood so you can take a look at the properties which are listed for rent right now. There really is no substitute for seeing a property with your own eyes. When you do this, you will then be able to develop a sense of the local market and what level of amenities your renter is going to expect from you.
A lot of people think that cash flow is the rent minus the mortgage. This is not the case at all. As a general rule, you need to expect any non-mortgage costs to be around 50% of your rent. In other words, if you have a rent value of $1200 then your on-going expenses will probably average around $600. If your current mortgage is $500 then this means that you will have around $100 leftover. This is a very far cry away from the $700 you thought you would be getting originally. Some of the non-mortgage expenses that you need to keep an eye out for include property taxes, insurance, vacancy rates, major repairs and even maintenance. Never exclude any property management costs because you plan to manage the entire property yourself either. Not everyone has the temperament to manage a renter well. Sure, you might have it today but that doesn’t mean that you are going to have it for the future, so it is vital that you keep this in mind as much as you can. You also need to know that buying a semi detached house is going to be very different to buying a huge mansion in the countryside, and that the costs associated with each type of property will also differ.
Not everyone wants to mess around with permits, contractors and even financing. There is nothing wrong with this at all. If the idea of managing a renovation or even a property fills you with dread, then you have nothing to worry about. It’s very possible for you to find a turnkey property if you want. When you invest in something like this, you won’t need to worry about finding a property or a reliable tenant. You will have a property that has a tenant already in a rent-ready condition. In this day and age, it’s very easy for you to buy a property anywhere in the world and when you do, you will soon find that you can make a profit without any of the stress. Just make sure that you go through the right provider and that you are aware of all the rules and regulations when you do.