From vacation homes to secondary houses, people often find different reasons to invest in housing. If you’re investing in property to rent out or use as a vacation home though, that can potentially turn into a reliable source of income.
If this is something you’re interested in, read on as we share all you need to know about buying investment properties.
Defining Investment Properties
Let’s first get on the same page. When we talk about an investment property, what we mean is real estate purchased with the intent of generating income. This could either be through selling the property at a higher value or by renting it out.
Factors to Consider
A first-time home buyer should understand that buying a house with the intention of using it for their family is going to be different from buying a house for profit generation. Let’s make sure you get the basics before anything else.
Buying a house as an investment is going to put a lot of stress on your finances. For this reason, you’ll have to be more stable compared to buying a private home. Generally, housing loan providers require a 15% down payment. This condition normally does not exist if the loan is meant for the borrower.
In short, a first-time homebuyer will need to have enough capital to cover purchase costs, which includes inspection and closing costs, plus any work necessary to repair or maintain the home. You should also note that for property rentals, the property owner is responsible for essential home repairs. However, remember that in some states, the tenant is allowed to hold the payment if repairs are not made immediately.
Return on Investment
It’s in your best interest to compute the potential Return on Investment before going about buying a house. This way, you can at least have an idea of how long you have to wait before you actually make money.
Here’s a summary of what you need to compute the ROI:
Estimate Annual Rental Income
You’ll only need to go to the classified ads to research the prices of similar properties. Compute for the average price and then multiply that number by 12. This will give you an idea of what you might earn in a year.
Compute for Operating Income
This is simply the net value of your annual rental income minus the cost of operating your business. Operating expenses are any expenses that you incur during your business’s operations. This typically includes expenses on insurance, taxes, and maintenance. In some cases, there is even a homeowner’s association fee. Finally, you should divide the resulting value by the value of the housing loan, and this will give you the ROI.
Acquiring the horse won’t be the last step. You’ll still need to invest your time into managing the properties. Assuming that you’ve already renovated, you will then have to advertise the property. Also, property owners are suggested to interview any potential tenant before approving their lease to avoid any unnecessary stress in the future.
Other things to keep in mind include maintenance checks, and background checks of tenants, as well as having to follow up on rental payments.
It’s a good idea to plan way ahead so that you get ample time to work on everything, from your budget to the maintenance and monitoring of your investment. It’s hard work, yes, but it’s work that’s well worth the effort. On top of that, this is also why you need professional help to make your process smoother!
If you’re looking for help with your housing loan, America’s Mortgage Solutions is here to help. We can help first-time property buyers finance their purchases. Get in touch with us today to learn more about our services!