Welcome to the second portion of a two-part series on investment property. In the first installment, “How Not to Become a Slumlord”, we discussed a small amount of what must be done to possess and operate a property as well as some of the do’s and don’ts of the property management trade.
In this second section, we are talking about some pre-investment principles that will help you increase your ROI. How long do you intend on owning the investment property? As with bonds and stocks, the worthiness of your investment may change significantly when you own it. Some real estate will appreciate in value over time, there are frequent fluctuations in the short-term market.
If you plan on offering your investment property after significantly less than five years, be prepared to accept the investment risk natural in a shorter time horizon. This is especially true if you bought your property in an overheated real estate market. If this is actually the case, you could see yourself losing profits if the market has used a temporary downturn, particularly if you’ve had to make major maintenance to the house. If you plan on owning the property for another twenty to twenty-five years, it’s almost sure that your investment property will appreciate in value.
There’s also a good chance, however, that you’ll have to make major fixes like changing the roof, wiring system, or major devices like a hot water heater or refrigerator. Obviously, these repairs will be offset by the fact that you’ve had/will have twenty plus years to recoup the price. If on the other hand, you’re only thinking about owning an investment property for another five years, buying a “fixer upper” can consume all the profits you would have made throughout your shorter investment horizon.
- Phoenix Finance and Investments Limited
- You pay 4%, or $12,000, in closing costs
- Type of industry
- Retirement Investing
If you want the best deal possible with an investment property, then there are some individuals you’ll want to be friends with. City hall clerks and bank employees may know what properties will be available on foreclosure and when they will continue the market. Realtors usually know everything real estate related of their particular territory. Some potential landlords even run advertisements in local newspapers.
Many individuals thinking about entering the investment property market may even join a local landlord or investment home owners’ organizations. These types of organizations hold regular meetings where you can get the within scoop on what’s accessible in your area. The National PROPERTY Investors Association can be an online organization that provides a wealth of information and resources to potential investment home owners. Get your finances in order. The less personal debt you have when you head into your local lending institution, the better loan you’ll get. That is common sense, but it’s even more true for those seeking funding for an investment property.
This is basically because lenders know that individuals are more likely to default on accommodations property than on their own homes. This means that the lender will demand a larger deposit and higher rates of interest that you may have expected. It’s also a good idea to have some supplemental income left over to make unexpected repairs as long as they arise.
Errors and Omissions insurance are the coverage you will need. While performing your due diligence, you should make sure that the 1031 Exchange Qualified Intermediary will in truth maintain sufficient Errors and Omissions Insurance plan. To ascertain whether the 1031 Exchange Certified Intermediary will maintain sufficient Omissions and Mistakes insurance coverage, you should ask for a duplicate of the insurance binder in order to confirm the insurance underwriter, the plan limit, and plan term/expiration date.