Buying and owning real estate is an investment strategy that can be both satisfying and financial rewarding. Unlike stock and bond investors, prospective real estate owners can use leverage to buy a property by paying a portion of the total cost upfront, then paying off the balance, plus interest, over time.
Though a traditional mortgage generally requires a 20% to 25% down payment, in some cases, a 5% down payment is all it takes to purchase an entire property. This ability to control the asset the moment papers are signed emboldens both real estate flippers and landlords, who can, in turn, take out second mortgages on their homes in order to make down payments on addition. Investing in real estate can be part of your financial portfolio if you trust the right professionals to advise you.
First Steps to Real Estate Investments
If you are a homeowner, you have already invested in real estate. Simply owning a home contributes significantly not only to your month-to-month financial stability, but offers some serious monetary benefit over the long term.
Why Should I Add Real Estate to My Portfolio?
As Realtors, we do not pretend to be experts when it comes to financial decision making, but we do know homes and the housing market. When done correctly, investing in real estate can be a powerful tool in your investment portfolio. With the proliferation of home improvement shows and mortgage tools, investing in real estate has never been hotter. So often we hear people say “oh, I’d love to flip homes!” or “It would be great to have a little extra income from a rental property.” Real estate investment represents a comparatively stable curve when measured against some other investment choices.
Real estate is a distinct asset class that many experts agree should be a part of a well-diversified portfolio. This is because real estate does not usually closely correlate with stocks, bonds, or commodities. Real estate investments can also produce income from rents or mortgage payments in addition to the potential for capital gains.
Options for Real Estate Property Investing
- Flipping: When you are flipping a house, you find a house that is perhaps outdated and in less than optimal condition that can be bought at a market low (aka rock bottom) price. Then, you judiciously make improvements that have an optimal Return on Investment (ROI) so you can turn around in a relatively short amount of time and sell it at a profit. When you flip homes, you need the expertise of a REALTOR to help you understand the local market so you know what improvements will be expected and absorbed. For example, in one neighborhood, people are not going to be willing to pay a premium price for quartz countertops, while in a different neighborhood such high end finishes will be expected. These houses will need a lot of work in order to make the most profit.
- Renting: When you purchase a property that you hope to rent out, you need to know ahead of time what that particular property in that particular neighborhood will command when it comes to rent. Your Tony Clark Realtor help you understand the market, or better yet, connect you with a licensed professional real estate management company that can advise you on rental fees, help you vet long term renters, be in charge of maintenance and rent collection. Using a property management company will make your life as a landlord much easier and allow you to invest in more properties.
Assemble a trusted team of professionals:
Talk to your real estate agent. A licensed and well educated real estate agent will be extremely helpful as you start to explore your options for purchasing an investment property. They will be able to help you run the numbers whether you are planning on flipping a property or renting it out. Additionally, unless you already have all of the home improvement specialists in your back pocket, your agent will offer a wealth of knowledge about who to contact for various needs. Obviously, flipping a house will probably need different attention than a house you are going to rent, and perhaps you are planning on doing a bulk of the work yourself, but chances are you are going to need some specialists at some point along the way.
Talk to your accountant who will be able to discuss the tax considerations of your real estate investment. If you are flipping, you are looking at receiving one big chunk of change in a given year. If you are going to be having rental income there will be monthly expenses as well as monthly income to balance out.
Talk to a licensed mortgage broker who can help you figure out how much of an investment you can afford, how much money you need to put down for a down payment, and what kind of mortgage product is going to work best for what you want to accomplish.
Tony’s Take-Aways: The Bottom Line
If you are seriously considering making such a leap, please keep in mind these top tips:
- Use a real estate professional to help you identify properties that would lend themselves well to investing.
- Do your research thoroughly before you jump into real estate investing.
- Buying a house to rent out to tenants versus buying a house to flip can involve very different sets of criteria. Know what your objectives are before you make an offer.
- Consult with your financial advisor, accountant, and mortgage broker about how to most efficiently manage your real estate investment dollars.
- If you are going to rent out a property, we strongly recommend using a property management company to help protect yourself and your investment.
- If you are going to flip the house, your REALTOR can advise you on the right finishes and what you might be able to sell the house for when the improvements are complete and then market and sell the property for you to maximize your bottom line.
If you love real estate as much as we do, investing in real estate might be a great option that can provide you with a hobby as well as extra income. The real estate experts at Tony Clark Realtors are ready to talk to you about any questions you have about investing in real estate. From finding the right property to helping you negotiate the contract, connecting with the best professionals, and then helping you find a buyer or a renter, Tony Clark Realtors is a full service brokerage. Call Clark (270) 926-0055