Investing in Residential Real Estate
You may ask yourself, how do I start investing in residential real estate? It is one of various investments that has generally withstood the test of time and market fluctuations, with some exceptions. Real estate is a popular option for financial investors as it remains one of the sectors to invest your cash and hopefully let it grow over time. Several options are available to invest in residential real estate, from buying individual single family properties to townhomes, condos. From primary homes, vacation or investment properties, fix-n-flips and construction loans.
How to start investing in real estate
While some people invest in real estate with a goal to accumulate wealth, others invest as a potential source of retirement income or just because it could be cheaper than renting. Real estate investors might benefit from capital gains, rental income, and potential tax benefits. Growing a portfolio in real estate could possibly be a great addition to your overall investment strategy. Real estate might provide a diversified source of income, and several types of properties can be chosen from residential real estate such as single-family homes, a duplex, triplex or a fourplex. You can also choose to invest in commercial real estate, but this consists of 5-unit properties or greater, along with various other types of buildings that are considered commercial.
Investing in a Vacation Home
If you're starting and want to dabble in short term rentals, you might choose to purchase a vacation home, which is also known as an investment property. The beauty of a vacation home is that you can use it as you please, but it also could bring rental income. If you live in an area where vacation homes are popular, vacation homes are an opportunity for some to start investing. The home has the opportunity to possibly appreciate, and you can either sell it or rent it out when you're not using it. Buyers of vacation homes might have options of various mortgage programs if needed, from DSCR, to conforming second and investment home programs and others. Once you've rented your vacation home, you can use the rental income to help cover your mortgage payments and possibly more.
Fix and Flips
Another way to start investing in residential real estate is to buy and do a fix-and-flip. You can buy a property and renovate it with the hope of selling for a higher price. Fix-and-flip investing is an option for those with the goal to keep a property short term and just rehab the house.
Your goal should be to know exactly how much you want to invest, and what the after market value of the property should be worth. You might even be able to obtain additional financing from the lender to help rehab the home. Hard money loans are generally short-term loans with high-interest rates, so be careful with keeping the high rate for too long. You can use the equity in the property when you sell to repay the loan back when you sell, hopefully you made enough to make a profit as well. If you want to take out an investment property mortgage, you may want to work closely with a mortgage broker such as Mortgage Quote that can help guide you through this unique process.
Investing in Single-Family or Multifamily Home
Start investing in residential real estate by purchasing a single-family home, condo or townhome or a multifamily property. A single-family home is an option if your goal is to own a property that is a single structure, generally they are not a part of a homeowners association, but can be. A multifamily property is an option for those whose goal is to rent out the units and may or may not live in one of the units. Buying a duplex or a fourplex, a building with four separate units can be a task as you might want to renovate 4 units, but it could also have potential returns that might be worth it. Just remember there are maintenance costs associated with each property, and costs may vary.
Steps of Purchasing of Residential Property
Are you ready to make your first residential real estate purchase? Below are a few of many you should look into helpful hints to follow when purchasing an investment property:
Understand Your Investment Style- Before you start looking for properties, take some time to reflect on your investing style. Ask yourself at least a few questions, such as: are you more interested in the rental income, or are you looking to sell the property in the future, what type of property are you interested in and what is your budget? A series of know your customer, which is essentially yourself as well. Therefore, pretend you were giving yourself advice, what would you ask, what would you do?
Research Market Trends- Research how the real estate market in your area has changed over the last few years. You can use this information to help inform yourself, this may help you find a suitable investment property. You can also use this information to help you decide how much you might want to pay for the property. See if the city has a master plan, and where the CRA areas as this might show where the city might want to build, and where you might want to consider. Of course speak to your real estate agent to help guide you when it comes to helping you select a property, as they may have some insight.
Find a Real Estate Agent- A real estate agent might be able to help you find an investment property. You can also use the agent to help you negotiate with the seller.
Get Pre-Approved for a Mortgage- Before looking for an investment property, you should consider getting pre-approved for a mortgage, this may help you get your offer accepted as some sellers look at a holistic approach. A mortgage broker like Mortgage Quote might be able to help you decide the maximum loan amount so you get a better idea of the purchase price maximum for a property.
Financial Benefits of Investing in Residential Property
Real estate investing comes with several potential advantages, you might be able to grow your money over time. Residential real estate might be able to provide returns that meet your needs. Second, it's a hands-on investment. This allows you to be involved in the property's day-to-day operations, which can be a fun and exciting way to get involved. Third, real estate is a fairly liquid asset, although not as liquid as other assets. This means you should be able to sell and trade in the open market and can convert it into cash.
Real estate is an investment that can have myriad financial options for investors. Residential real estate could have benefits, such as increased value and tax breaks, such as depreciation and deferred capital gains taxes, of course speak to your CPA to know further. If you're ready to start investing in real estate, make sure you understand your investment style. Residential real estate for income should be a long term goal, so you should be prepared to hold on to it for the long haul.