Want to buy an investment house? Four points to know before you do so
The lowest interest rate in the history of the United States has recently excited many people's interest in investing in real estate, and many clients have begun to ask us for advice on buying investment real estate. Just like any other investment, investing in real estate has some risks.
Choosing a house, maintaining a house, dealing with tenants...If one step does not go well, the real estate people may be unprofitable and may even encounter economic losses, causing unnecessary trouble. Today we summed up the following 4 points from everyone's questions, to help you find the way ahead of time if you want to invest in real estate.
1. Liquidate your surplus
To buy a house, the first thing to do is to prepare a down payment. In addition to the down payment, you need to prepare for hidden expenses such as closing costs, mortgage payments for the first few months, maintenance fees, property tax, prepaid interest, and so on. And the upkeep fee is the maintenance and upkeep of the house after you buy it. Whether you need to add a curtain or build a wall, make sure your budget is set aside in advance. Simultaneously, to prevent the house from being vacant in a few months due to the failure of the rental, a sum of petty cash should be planned for the bank loan in these months to prevent the extra pressure on your daily life. Especially if there are other mortgages or loans, it's essential to figure out the upfront costs of a home before buying it.
2. Choose the right investment market
Real estate income includes rental income and potential appreciation income. It is easy to understand that rental income is the most crucial income source for investment houses, directly affecting the cash flow of dwellings. Good cash flow makes your daily money management more secure and makes us more resilient to stress. The other part of the gain is the appreciation value. In other words, if the value of the house goes up after the purchase, it will have a potential profit when it is sold in the future. A successful investment is usually a combination of both. Therefore, selecting a suitable market for potential appreciation is the first step in real estate investment. An affordable and growing region is the best choice. The impact of economic strength on the real estate market is significant. The growth of population, employment, economy and industry, and mortgage lending will drive the local real estate market to flourish. Population growth is an essential indicator of a healthy housing market. More people are moving means more tenants and more employment, leading to increased demand for housing.
3. Where can you buy the investment houses specifically?
Determine the investment market, then it is necessary to consider where to buy the house. The location has always been the first element of selection. When choosing a house, the following problems also need to be made clear before moving:
What is the crime rate here? Is there a school near? How do they rank?
How far is the park, supermarket, transportation hub, and restaurants?
What is the state of the real estate rental market in the region? What are the comparable rents and prices?
What are the short-term and long-term plans for local economic development?
In general, homes near city centers, tech companies, and schools have reasonable rents, lower vacancy rates, and more stable appreciation potential. Specific to a house's choice, the market often encountered two places in the same community, perhaps because of slightly different decoration style or layout. So when choosing a house, if the conditions permit, try to visit the site and ask a professional broker who knows the local background to give enough advice.
4. Do the math for an investment home
Before the house is formally purchased, an account needs to be calculated separately, namely the rental rate of return of the investment house.
Rental return = annual net rental income / the total purchase price %
The purchase price is easily understood as the amount paid to the seller when the home is purchased.
Annual net rental income = annual rental income - homeownership, and rent-derived expenses.
Derivative expenses include property taxes, home insurance, community fees, maintenance fees, vacancy allotment, rental management fees, and others. Especially when the house needs to be repaired, the upfront capital investment should also be considered as a cost. Then how to calculate the annual rental income? You can take a look at the median rent for 10 existing rental units in similar conditions around your property. The point of using the median rather than the maximum price is that we can attract enough tenants for a relatively reasonable rent.
This helps to let you shorten the vacancy periods of your property and allows us to select potential tenants with the best credit and character from those who apply.