With the stock market constantly going up and down, owning real estate is becoming increasingly popular. This can come with a whole lot of responsibility though if you plan on participating in the landlord game. But if you are able to find a situation that works and property and a solid value, than it can be a good way to build wealth.
To make a rental property to work you need the right connections, planning and enough time to reserve for this ‘side project’ of sorts.
Set a Time Table
It is typically best to hold onto a property 5 years or more, with exceptions, but no matter what the plan is make sure you actually have a plan. If you do plan on owning the property for a great amount of time, maintenance and upkeep will need to be factored.
If you do buy in a time and place where the market is not doing the greatest, a long-term investment is the best bet. A 5 year investment in a troubled area could just turn into a bunch of work without much, if any return. But for almost all area’s, history has shown an appreciation over a 20 year span.
When it comes to putting to together an effective strategy, finding property that has a great risk of rising in value is critical. Some people may search out city hall clerks and bank employees who know what homes are being foreclosed. Other people have networked on social media platforms and take advantage of that technology. If you get enough rental properties you could quit your job. Some people enjoy that freelance lifestyle, although it typically involves lots of work depending on finances.
Joining a property owner’s association or something of that ilk is also a very practical, smart way to get involved and connect with valuable resources.
Putting yourself in a position where there is ‘a way out’ is smart too. For example, if your tenants leave for one reason or another, be sure that your financial situation is such that you can still make all your required payments. Think of creative but easy backup plans too. Such as, simply move into the home you are renting out if it is turning into a hassle or a money pit. So if you are in a financial situation that says that may need to be a possibility if renters are not working out, make sure the rental home is in an area you like it’s a home you can enjoy. Essentially, don’t just buy something because it’s cheap, rather, buy it because you like it and see value.
Lending a hand
Your credit score is always looming when it comes time to apply for a loan, and other items such as consumer debt are also key. Banks are not handing out loans like they used to of course so if your credit is not good at the moment, that should be your top goal if you want an investment property. Investment properties too typically require a higher down payment because there is more chance for default.
If you plan on taking your retirement money to make this work for you, than you should just deny yourself a property and walk away immediately. IT’S A BAD IDEA.
Safety First
Knowing how much to pay for your property is critical. If you pay too much at the start than realistically your odds for a profit are gone. It is important to factor things into a purchase other than something seeming like a “cool” idea. The situation may arise 4 years later that you need to see but nobody thinks it’s “cool” unless purchased for less than you bought it. It’s a tough pill to swallow yet very probable in various situations. One thing to consider is how much rent you expect to occur annually. Maybe you don’t want to pay more than 8 times the rent the first year. Maybe you plan on making repairs or upgrades. Figure out what comparable homes value out and how much supplies and repairs will cost in terms of money and time. Sometimes these formula’s help, sometimes people figure out other formula’s that do or do not work.
If your mortgage is $1000 a month, try to get $1200 from renters. This can help cover other things like taxes, insurance, many of the things previously discussed and expected vacancy from time to time.
You will find that life improves in terms of taxes and what can be deducted when it comes to repairs. Home improvements be looked at as upgrades though and not so pretty come tax season.
Regardless, successful real estate investors have been plentiful in all generations and this will continue. So it is time to improve your financial situation and be in the position to say you did not let an opportunity pass you by.
