Real Estate Investing
A home is an investment. You build equity as you pay off the mortgage, eventually making you the owner of an asset that you can sell or rent out at a profit.
Buying a home purely with the intention of using it as a business is a different story, however. Unlike your primary home, which serves as your residence, an investment property must be selected solely for its profit potential. The things you look for in your residence may not always be needed or desirable in an investment property.
Here are some things you need to consider when investing in real estate.
- Expect profit after the mortgage has been fully paid
If you buy an investment property through financing, the rent you receive should be enough to cover the costs of maintenance, mortgage, and taxes. You may also charge more to get a profit, but a typical strategy in property investment is to charge only enough to cover the costs. Once the mortgage is fully paid, a large part of the rent then becomes profit.Many investors use the 1% rule when deciding if an investment property is worth purchasing or not. The rule basically says that a rental must bring in profit equivalent to 1% of what you pay for it in mortgage and taxes every month.Check the conditions and the prevailing rental rates in the market you want to buy into to see if the 1% rule can apply. Make sure you’re not pricing your property out of the market, or you might end up with vacancies.In addition to profits from rentals, you can expect the value of your property to increase over the mortgage period. While home values may dip in times of economic distress, they have historically proven to be resilient, rising at an average rate of 3% a year in the last 100 years.
Rental rates also tend to rise with inflation, making your investment resilient against inflation.
- Make sure you buy in a good location
Location is very critical when investing in a rental property. Buy a home in a neighborhood where people will want to live/stay. Ideally, it should be near employment centers, schools, shopping malls and other conveniences.If the property is a vacation home, it should offer great access to the area’s attractions and amenities. In the Jersey Shore, this means the property should be close or have great access to a beach, the region’s main attraction.
- Make sure you have a good credit score
Lenders treat an investment or secondary property differently, making finding financing for one a little more difficult. You will most likely be asked for proof of income stability or even cash reserves. You also need a great credit score and a low debt-to-income ratio to get excellent lending terms.
- Be aware of tax benefits
The government offers tax benefits to rental property owners because they help in providing a solution to the country’s housing needs. These include:
- Depreciation write off – a building’s depreciation expense can be written off as a tax deduction
- Mortgage interest deduction
- Insurance cost deduction
- Maintenance cost deduction
- Buy a home that will withstand wear and tear
Invest in a property with solid construction and one that will require less maintenance. Tenants tend to be less mindful of home maintenance than owners. You’d want your investment property to be in great shape for a long time, especially if you have plans of moving into it in the future.
If you’re looking into buying a home on the Jersey Shore, whether as a primary home or investment property, you can get the expert guidance you need from the Glenmary Real Estate team. Call them at 732-630-3000 or email them at email@example.com.