After you have purchased your first home, you may find the idea of investing in another enticing. With the real estate and housing market currently struggling, the idea of purchasing a second home as an investment might be one you would hesitate on. However, if you have some fortitude and patience, now could be an excellent time to invest in real estate.
Interest rates have been lowered to combat the economic issues within the market and some predict the rates will fall even lower. As the market declines, the price of investment has fallen, which makes the opportunity to invest in a second home a tantalizing opportunity. The rental market has revived under the economic conditions and the ability to make a return on a second home is undisputed. If you are ready to consider investing in real estate please consider the following tips.
After investing in real estate, a big part of seeing a return is making sure that the correct financing is in place. Real Estate must not be looked at as a standard wholesale and mark-up operation, but rather approached with a series of questions to determine your goal with the property. You must first identify if you want a short-term profit or a long-term profit represented in annuity. If you are looking for a short-term profit, which would involve you purchasing the property and selling it following renovations or changes that make it worth more than what you paid, you will want to consider an adjustable mortgage with a very low temporary interest rate. Keep in mind, though, you must sell the property before the mortgage resets which is a variable length between two to five years. If you do this you can maximize your profit by paying only the interest and making the principal the buyer's responsibility. For longer-term real estate investments such as renting them a fixed mortgage will be better as they allow you to plan your cash flow accordingly.
Many people who invest in real estate may want to quickly pay off the debt, but remember; you are using rental income to help subsidize the mortgage payment. If you truly have a long-term horizon, you can rest easier knowing that someone else is paying more of the interest and principal each month than you. For rental properties or investment real estate, make sure you are also leveraging all of the tax benefits of depreciation and valid expenses.
Do it yourself where you can
When you invest in real estate, profit is made and lost through the general upkeep, not when the deal is made. To put it into perspective, you may have turned a 10,000 USD profit on the sale price after one month, but if you have fees amounting to $1000 for your attorney, $5000 for your contractors, and $5000 for your real estate you have lost money. Improvements to your property, such as new cabinets, unique landscaping or modern tiling, can add value. You can make these renovations using either professionals or attempt to do it yourself. Hire professionals to do the alterations you need help with and save money by doing the projects you are capable of. It is important to know what skills you have and to not overestimate your abilities in home renovations as mistakes can be costly. When you close your deal, consider what needs to be done to the property to make profit from the purchase. Once you determine what you can do and what you cannot do from that list, estimate the price of labor to do those fixes by calling local contractors and finding their rate. You can then assess if the property is worth buying.
You may be surprised to find out that you can do many tasks you used to pay for far more efficiently. If you absolutely cannot perform the renovations yourself, make sure you budget accordingly as to not lose your profit paying service providers.
Use help where appropriate
Just as with any venture, Real Estate investment is difficult to do alone. It may be worth the price to hire real estate and legal professionals. For example, if a real estate agent is able to find you a buyer quicker than you can on your own, paying the commission may be less expensive than the months of payments you would pay from your profits. Hiring an attorney to handle parts of the paperwork pertaining to the contract and title allows you to free your time to work on the property and prepare it for the sale. Even more important, if this is your first investment, having a paid advisor might help to ensure you avoid any legal entrapments or misunderstandings. Learning from the first experience allows you to possibly handle the process the next time you invest in real estate.
Know market trends
It is important to know how competitive the business is once you get involved in real estate. You will be joining businesses and individuals who have been in the market longer than you have. While you cannot replicate their experience overnight, you can educate yourself on as many of the issues and trends as possible. Research home prices by following the sales in the newspaper and note the trend of home prices. Review the classifieds for fair rental prices and even visit homes that may be similar to the one that you are going to list. Visit the local banks and see what is happening in terms of loan volume and required down payments. You can use this knowledge to avoid paying too much and perhaps even negotiate a better deal. Education is great preventative medicine against overpricing or under-pricing your targets.
Making real investments
When investing in property besides your primary residence, the most important rule is to practice basic business principles. Your goal is to make a profit by selling the home for more than it cost at purchase. When renting, you are relying on rental income to subsidize a fair amount of your mortgage. Greed and dreams of quick dollars will likely lead you to trouble, but making logical, business-focused decisions should allow you to extend your real estate holdings outside of your home.