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Buy Income Property |
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Determine Your Real Estate Goals
What are you looking to get out of your real estate investment? It could be one of many different goals, but here are the most common, along with some of the strategies used to maximize each benefit. · Income - Are you looking to gain maximum income (aka cash flow) for yourself? If so, you'll either need to maximize your down payment, get an extremely good deal on an investment property, find a property with high rents compared to its cost (usually in a lower class neighborhood), or find a creative way to buy property. Maximizing your down payment will reduce your mortgage expense and possibly eliminate PMI insurance. This will lead to a reduction in your expenses and an increase in the amount of cash flow each month. Getting an extremely good deal on an investment property is always the best way to increase your monthly income or cash flow, but it is also very difficult to find. Your best bet on finding a good deal on an investment property is to use creative and non-traditional ways to invest in real estate. Finding a property with high rents relative to its costs can usually be done by investing in less appealing neighborhoods. The trouble with these properties is that they often come with undesirable tenants or require significant maintenance. Finally, finding a creative way to buy a property [ADD LINK] can often add to your monthly real estate income. Being creative is not that hard, but because it requires a different type of thinking, sometimes requires you to be a good salesperson. · Capital Appreciation - Are you looking to buy a property that will reap maximum rewards at a future point in time (when you sell it)? If so, the best ways to achieve this are by buying in an up-and-coming location, buying a fixer-upper, or finding an investment property with untapped potential. By buying in an up-and-coming area you are betting that the value of your investment property increases at a faster rate than properties in other locations. Up-and-coming areas can only be found through speculation and are typically riskier to buy, but can offer bigger returns than other properties. Buying a fixer-upper is a good way to find capital appreciation, but be careful not to spend more on fixing the property than the capital gains that it will provide. Finding an investment property with untapped potential is another great way to find capital appreciation. By finding untapped value in a property you can quickly increase its resale value. Untapped value includes such things as adding storage facilities, building additional rental units, selling parking, capitalizing on any other property characteristics, and even increasing current rents. · Tax Incentives - Looking to buy properties to help you pay fewer taxes? This is rarely a primary goal but should always be evaluated in buying a property. Certain properties, including historical buildings and fixer-uppers, can offer tax incentives. Also, many government, city, state and non-profit organizations often offer tax or other incentives. However, you'll have to do your research on how to take advantage of these incentives. · Diversification - Looking to diversify your investment portfolio? Your real estate portfolio? Investing in real estate is a great way to diversify your investments away from other investments. If you already own real estate, it is also wise to diversify your real estate portfolio by investing in property in different locations, different types of property (single family, multifamily, commercial, etc.) and different aged buildings. The only problem with diversifying is that you often lose some of the expertise you've gained from your current investments. It makes sense to have more than one goal, and therefore to use different real estate investment strategies. Prioritize your goals and learn to understand what you want from each investment. It is important to understand your goals before you go any further.
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