The housing market, except during the great recession period of 2007-2008, has remained a less volatile market. Compared to stocks and commodities, the housing market has been a consistent performer and delivering returns which are not only stable but sufficient also.
Investing in Real Estate is one of the oldest methods of building wealth. Buying a rental property or investing in it is probably the most used option by the property investors to start building their wealth.
Typically, investing in real estate will offer you the following benefits:
- Price appreciation or capital gains- It is simply the difference between the price you paid at the time of buying the property plus any additional costs incurred minus the price you get when you sell it. The positive difference is your profit or capital gain. For example, if you bought the property for $100,000 and sold it for $120,000- the net appreciation of $20,000 is your capital gain.
- Reduction in Loan Amount: As you continue to pay your mortgage payment through rental income, your principal loan amount continue to decrease giving you better returns and a mortgage-free property.
- Reduction in Tax Liability: Tax laws offer you an opportunity to reduce your tax liability on the property through depreciation. It simply means that for tax purposes, the value of your property depreciates over a time horizon. What you get in the end is the lower tax liability on the property which is depreciated as per the tax laws.
- Positive Cash Flows: Probably the greatest charm for anyone looking to buy a rental property is the positive cash flows received through the rental payments. It is simply the difference between what your tenant pays and what you pay to your mortgage company as a monthly mortgage payment.
But investing in rental property can be a pain too. Managing tenants, collecting rents, looking after the property and dealing with tax matters are some of the recurring issues which you as a real estate investor has to face on a daily basis.
Much of this can be overcome with a little bit of planning and homework before investing and this post will provide you lot of essential tips and tricks to not only buy your rental property but also effectively manage every affair of the same.
Think Long Term
Every investment whether you invest in stock or buy a rental property requires a long term view. If you are after a short term quick profits, any investment would be just equivalent to taking a bet.
You expose yourself to unnecessary risk by limiting your investment choices to a short term period.
Instead, consider buying a rental property as a long term investment. Take this investment as something which can offer you monthly returns in the shape of rent and capital gain once you sell the property.
Hire a Mortgage Broker
Before trying your luck in this market and taking things on your own, it is a great idea to actually hire a mortgage consultant.
Real Estate market is quite unpredictable and any self-assessment of costs and values can cost you a lot. To avoid any cost over-estimations and to prevent other hidden costs, it is always a great idea to first hire a consultant to take advice.
Have Complete Rental Set up Before Approaching Banks
Most investors take bank funding to finance their rental property purchases. Besides other factors such as expected rental income, property value etc, a bank or a financial institution will always look for an established rental set up.
Without an established rental set up i.e. you need to have some sort of organized rental property business to approach a bank first. You need to have your paperwork ready and must also have a separate account i.e. not personal account from where you make the transactions.
Always Think about Location
It is quite easy to get tempted to go for low-value properties offered far from the area where you get the most rental income. But the real trick is to always work hard to find properties which are not only are low value but are located in an area with the highest rental income potential.
When choosing the rental property, make sure you understand the area, its network of public transport, the closeness of schools and offices etc.
Above tips can really help you to target the right type of rental property to search for and look.