We’d all like to think that investing into real estate is always going to be a smart purchase. This is not always the case and in some situations it can be financially risky. If you’re thinking about becoming a homeowner but feeling hesitant about the potential gamble then an investment property might be the perfect compromise. An investment property allows you to own a home while earning additional revenue.
The ultimate goal of an income property is to bring in positive cash flow. If you are investing into your first income property you will hope to at least break even in your first year, enough to cover your mortgage payments. Make sure that the inbound monthly rent payment will offset your maintenance fees and expenses.
A smart idea is to set aside around 3% of your total property value for yearly maintenance and repairs. You will then deduct this amount from your total rental income. For example, let’s say you purchase your home for $150,000, this will leave you with a hefty $4,500 cushion to cover any hidden expenses. If you are charging the tenant $1,000 per month and it covers your mortgage this equates to $12,000. Subtract the $4,500 and this will leave you with a total yearly profit of $7500.00. Having somebody pay down your mortgage while making additional income is a great way to get ahead financially.
You can increase your monthly rental fees by adding updates and trendy finishes to your investment property. Fresh paint, new floors and attractive fixtures will entice and impress potential tenants.
Gaining equity on your home is a beautiful thing provided the market stays strong. There are many variables to gaining property value but in some cases you will gain money without making any changes to your home. This of course is dependant on the real estate market inflation as well as location of your home. Updates and additions can increase your home’s value but this is not always a definitive growth.
Check out the Census median home values from all 50 states from 1940-2000.
There are a number of tax write-offs that you can take advantage of as a landlord. Legal fees, repairs and maintenance, property taxes and insurance are just a few of the things you can write off. Visit your local tax expert for more information.
You’re The Boss
While being the boss has its obvious downsides it can also be a very positive experience. You get to control your situation in terms of tenants and pricing. You’re in control of your own success.
If you find yourself in a position of managing multiple properties this can become your full time job. You have the power and a decent income can be made even while working minimal part-time hours.
Keep in mind while real estate generally provides a great ROI over the years there are disadvantages to property management. The biggest being dreadful tenants. Unfortunately the odds are in your favour that eventually you will come across a bad egg. Scams, stealing, and vacancy are all prevalent in property rentals. Some renters may cause more wear on the home then expected and others may make late rent payments or not pay at all.
Owning a rental property can also be tough if you have a family and a full time job. If you don’t have the spare time to be fixing broken toilets or dealing with a midnight flood then you should reconsider managing a property.