Real estate is known to be one of the safest and rewarding investments. Now that the housing market crash is starting to become a thing of the past, home values are starting to rise. According to the National Association of Realtors, the national median existing single-family home price has risen from last year, and 90 percent of major metro areas for existing, single-family homes saw gains. Rising home prices have more people considering investing in rental homes. Rental homes, or investment properties, bring a great return on investment if worked on correctly. An investment property does not have to be a full-time job, but future investors must realize that it is not an over night success. This is a process that is very slow and steady.
President of Prospect Financial Group, Jason Vondrak says,
“Prior to purchasing an investment property, it’s important to do some preliminary research on the commitment that will be required of you. Buying an investment property is much different than buying a primary residence. Real estate investment properties have long been the investment vehicle of choice for many. This is due to tax incentives, financial leverage, appreciation and rental market certainty.”
People who decide to invest in real estate can make great money because real estate is an appreciating asset. When land is purchased, it is safe to know that it will never lose value. The more people that purchase land, the more land becomes limited. This is the main reason why real estate can be considered an appreciated asset. The economy’s health has a lot to do with how well your investment property will appreciate. For example, a strong jobs report means more people who are making money. The more money people have, the more houses they will be able to afford. Thus, this will invoke greater home-buying competition, making home options limited. By purchasing a rental property in a community that is up-and-coming, it is likely your real estate appreciation will rise. The reason being, home-buyers often look to purchase homes near schools, hospitals, restaurants/bars, etc.
Calculating your appreciation is a great idea to see how much you could truly make.
2) A safe investment
Becoming financially secure is important. Being as real estate will never not be in demand, rental properties can be a secure investment. There is a common debate between purchasing stocks versus real estate. For example, if you were to invest in stocks, it would be quite a gamble. Since a rental property is a tangible asset, you can keep an eye on your property rather than your stocks. You can inspect it, talk to your renters, and even see how the community around it is building up. With stocks, you have to put more trust into others (auditors and management).
3) More cash in your pocket
Having rental properties can be a way to financial freedom. Aside from gaining appreciation over time, an investment property can bring you money regularly, as well. By renting out your property to tenants, you can generate income swiftly. To avoid unforeseen expenses when your tenants move in, have the property inspected first. Be sure to be realistic about how much you plan to rent your property for by checking local listings to get an idea of where the market is.
“There are also some risks involved with purchasing an investment property and these need to be considered. This isn’t to say that it is an inferior investment than a primary residence because it’s usually not, however, there are some key differences. Financing guidelines are typically stricter due to the fact that homeowners are usually going to stop making payments on their investment property prior to stopping to make them on their primary residence.”
When applying for the financing an investment property, a much larger down payment will be required of you, usually 20-25% of the purchase price. It’s also important to note that financing can be slightly more difficult to qualify for if the lender elects not to qualify you based off of future income from the rental property. Lenders will also typically require you to maintain 6 months in cash reserves and will sometimes also require you to maintain a 6 month’s rent loss insurance policy protecting you and the lender from unexpected occupancy gaps.
Get a real-time quote to see if it is worth it for you to start a real estate portfolio today.