Most experts agree that one of the best ways to invest your money is by purchasing property, both as a homeowner and for investment purposes. But how and where to purchase investment property is the key to its success and profitability.
What Areas Make for Good Investment Properties?
In 1944, British Securities investor Harold Samuel coined the phrase “location, location, location” as the three things that matter in property. Therefore, your first step should be to research the local real estate market in any area you’re considering purchasing in. There are a number of sources for looking at past and present property values, like Zillow and Redfin. Also, the National Association of Realtors has housing statistics and real estate market trends.
Take note of population growth in the area, too, since properties in areas that people are moving into mean a higher demand for rentals. You’ll want to be in an area with strong economic growth. Check to see if businesses are moving in or closing up. The number of new school construction is another indication of a thriving town. Unless you’re looking for vacation rental, you might want to be near major roadways.
Financing Your Investment
A traditional mortgage means you’ll want to start with a pre-approval letter. It shows the sellers that you’re serious and have financial backing. It will also give you a better idea of what price range you can look at for purchasing. A pre-approval isn’t a guarantee you’ll obtain a mortgage, there will be a closer look into your finances when it’s time to obtain a mortgage loan, but it’s a great place to begin.
If you own property and have equity in it, you can obtain a home equity loan since it’s secured by the equity in your home.
If you want to purchase in an area that’s over your pre-approved budget, consider buying an as-is property. This means the seller doesn’t want to or cannot afford to make repairs and upgrades to the property. There is no guarantee that everything is working, so get a home inspection first to make sure there’s no structural damage.
Renting Your Property
Set clear rental terms, including the amount, the due date, and any fees, including late payment fees.
Screen your tenants carefully. You want to be sure you’re renting to reliable and reputable people. It’s essential you perform background checks, credit checks, and employment verification. However, you won’t have the same access to all of that information that a professional background check company will have. It can well be worth your while to hire a background check company to do the screening for you.
You may want to use a property management company, too. They can handle all the repairs and maintenance for you, as well as collect rent, address emergencies, and take care of legal issues for you, like evictions. Check reviews and ratings online for property management companies in your area.
Make sure the exterior of your home is as fresh and up-to-date as the inside. Curb appeal is critical since people will drive by a home that doesn’t look well cared for.
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Property Investment as a Business
Since you’ll be making passive income from your rental property, you may wish to form a business. You’ll need a name for your business first so you can register it and get all the necessary forms and permits.
Then it's important to create a business structure. This can be a sole proprietorship, a corporation, or a limited liability. An LLC may be your smartest option. That type of business structure is best for shielding your personal assets by separating them from your business finances. You can form an LLC yourself without the need for an attorney by following the instructions like this for how to start an LLC in Colorado. Rules vary from state to state, so be sure and check with the state you’re in.
Making passive income with rental property can be one of the best investments in your future that you can make. Do your homework, call in the experts when you can to find tenets, and manage and maintain your home. Form a business and structure it in a way that makes the best financial sense, then enjoy knowing you’ve got a bit more financial security for now and long into the future.