Investing in property can represent a short term investment or a long term income strategy. As a short term investment, you can buy the property, fix it up or add upgrades, and then resell it within a matter of months at a profit. As a part of a long term scheme, you can buy a property in a neighbourhood on the incline and use it to bring in rental income. This is called buy to let, and can allow you access to an extra income for many years until you eventually sell the property. Can you afford to buy investment property for sale in your area? Here are some ways to know if you're ready.
What is the Cash Flow Analysis?
When you are planning on keeping the investment property and renting it out, a cash flow analysis is necessary. The cash coming in from the property should be more than you are putting in each month between the mortgage, insurance, and other expenses. If you're not good with numbers, enlist a financial advisor early in the process of your investment. You need to evaluate your potential cash flow before you buy the property -- not afterwards. Ideally, your monthly return will be at least 150% of what you are putting into the property.
Can You Afford to Carry the Property?
Even in the best market, sometimes a property purchased as an investment will not be successfully rented full time. Or worse, you may have no plans of renting it out and intend to sell it, only to find that you can't a buyer. Can you afford to carry all of the costs associated with the property in the mean time? If you can't afford to pay the full mortgage on the property for any period of time, investing in a property is not right for you. If you are currently renting, make sure you would be willing to move in to the investment property if need be.
What are the Taxes?
Your investment won't come without its tax consequences. You will pay income tax on any rental payments you receive, and when you sell the property it will incur capital gains taxes as a second home. Understand the tax burdens before you go head first into an investment property purchase. The sale of a home may also cause you to go into a higher tax bracket for the year, increasing the tax rate on all of your income.
Can You Afford Maintenance?
Even though you may have rental income streaming from the property, there will still be additional expenses like maintenance or storm damage that will fall to your. Is the rental income enough to cover these costs? If a fire occurs or other severe repairs are needed, the responsibility will usually be yours, not the tenant's, unless he is legally liable for the damage for some reason. A savings that can absorb the maintenance costs is important to all homeownership, even if it's an investment property.
Are You Willing to Haggle?
If you are willing to haggle on the price of a property, you may be able to afford the investment after all. Don't be afraid to offer a lower purchase price that what the seller is asking for, particularly if the property has been on the market for a long time. If your budget is modest, concentrate on properties that are in foreclosure or short sale status and that would be easy to fix up and resell for a significant profit. These properties can take longer to buy because you are dealing with a bank, but they can also represent increased profits.
Investment properties for sale in your area are an appealing venture for the entrepreneurial at heart or those who are looking for a quick increase in cash flow. However, not everyone can afford the burdens associated with owning additional property. Carefully consider your current financial situation when you think about investing in a home or commercial property. Also consider what would happen if you lost your job -- while the investment property would mean a steady income, sudden repair costs may become out of reach.