How to buy rental property as investment home
Buying investment homes can be a great step towards securing your financial future. If you desire to generate additional monthly income cash flow, buying a rental home can be an excellent means of accomplishing this. Do your research, take your time. Buying an investment is different from buying as home that you want to live in. Read on some tips on how to buy an investment home.
What are your strategies?
Before doing any thing else, you want to determine your investment goals. What is your goal of owning rental property? Then you need to plan your strategies. How long do you plan to hold your rental property? Are you going to manage the properties yourself or hiring property manager? Are you handy enough for minor repairs or do you have a list of trusted handyman or contractor?
Determine loan option
If you are buying investment home with mortgage, it is important to weigh all your financing options carefully. Should you choose a 15 years or 30 years mortgage? A fixed or adjustable rate?
Plan on large payment
Mortgage insurance is not available for investment properties. So, a 20% down payment is required to get conventional financing. Some lenders may requires 25% or even 30% for investment or non-owner occupied loan. And putting even more down can result in a better rate. Also, loan costs are generally higher for investment properties.
Higher interest rates
The interest rate on an investment property will be higher than traditional mortgage interest rates. Don’t be surprise that you see the rate is 1% higher than regular conventional mortgage rate. Keep in mind that, you need a low mortgage payment and monthly expenses so that you can generate monthly cash flow.
Calculate the numbers
You want to buy an investment home to make money from passive income. Of course, investing in real estate doesn’t come free of costs. There are mortgage payments, insurance, repairs, taxes and others. You want your monthly rental income enough to cover all the expenses and also generate cash flow and overall return. Therefore, never make the jump into real estate investing without doing the necessary calculations.
Conclusions
Investing in real estate could earn you a good chunk of money and many still consider it to be one of the best ways to secure financial freedom. This is because it offers two fold investment returns, which include a steady residual income from the monthly rental as well as equity from the property itself. As with any investment involve risks and you really need to consider how this type of investment would be for you and your situation.
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