Real estate investments provide a variety of benefits for property owners. Whether you purchase residential properties, commercial properties or a combination of the two, becoming a landlord can enable you to generate multiple streams of income. With a reliable strategy, you could go far beyond playing the game of Monopoly to purchase an investment property that increases your wealth.
Why Buy an Investment Property?
Beyond owning your primary residence, additional properties can provide lucrative opportunities. Based on your goals and your tolerance for certain risks, you might be attracted to a few of the investment strategies that are shown below.
Buy and Hold – This is generally a long-term strategy that is used to buy a property at a set price with the goal of selling the property for a profit at a later date or to borrow against the equity within the property.
Fix and Flip – As a short-term investment strategy, you would locate and rehab properties that need repairs. Based on a calculation to determine the after-repair-value, you would need enough money for property improvements that enable you to make a profit after you sell the property.
While some investments are intangible, becoming a landlord will provide physical ownership of a dwelling or land. You will have a deed that reflects your ownership of an investment property. Therefore, you will be able to rent, repair, sell or do whatever you want with the property.
You have probably heard real estate agents exclaim that nothing is more important than “location, location and location.” The expression is particularly true if you are shopping for your primary residence, great public schools and for a safe family environment. As a landlord, you might decide to offer rental properties with similar qualities. Also, your search for properties that have a higher probability for profits may be located in neighborhoods that are less desirable. Your investment strategy will guide you toward the types of properties and neighborhoods that you will invest in.
Again, your goals and your tolerance for risks will be used to procure properties that meet your needs. Shown below are some of the best types of investment properties for landlords.
● Single-family homes
● Duplex properties
● Multi-family homes
● Apartment buildings
● Mixed-use properties
Pros and Cons of Becoming a Landlord
Becoming a landlord has many advantages. You could earn a nice living, while fixing up local properties that are vacant. As a landlord, you are likely to increase your net worth. When tenants pay rent to live in your properties, you can apply the payments toward the principal balances that are owed on your mortgage loans. Over a period of time, your wealth should begin to increase. As a real estate investor, you can also gain a number of tax advantages (discuss specifics with your accountant).
Becoming a landlord might also have some disadvantages. For instance, if a tenant does not pay rent on a timely basis, you could experience cash flow problems. If you have to pay the mortgage payment until the tenant pays the past due rent or until you find a new tenant, you could encounter a few unexpected challenges. Additionally, if a property has a lot of repair issues, you could spend too much money toward property improvements.
It is important to understanding your role as a landlord before purchasing your first investment property. Also you should speak with a property manager and local contractors who may be able to assist you with repairs or other issues.
We employ knowledgeable and courteous mortgage professionals. One of our lending experts would be delighted to review your qualifications for an investment property loan.
Contact Prospect Financial Group today to inquire about financing for investment properties.
Prospect Financial Group
948 Garnet Avenue
San Diego, CA 92109
NMLS: 349089 | BRE: 01837707
Jason Vondrak has been in the mortgage industry since 2004 and co-founded the mortgage brokerage Prospect Financial Group in 2006 in San Diego, California. Today he serves as President and CEO of Prospect Financial Group and the president and founder of Prospect Property Group, a real estate development company, established in 2012.
“I’ve had the privilege to serve in an industry that exists to ensure homeownership remains among the top priorities of government and citizens alike. Over the years, it has been a pleasure working alongside homeowners, real estate professionals, and business associates combining efforts and teaming up to help homeowners realize the dream of home ownership.”