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Category Archives: Property Investmen

Rental Property Investment Strategies

There are many ways to invest in rental property.
Renting real estate can be a profitable venture for investors to consider. Rental properties provide a monthly cash flow, offer tax advantages including property depreciation and the property may increase in value depending on location and the local economy. Just as there are many ways to profit from rental real estate, there are many different investment strategies to gain exposure to the rental market. Investors should consider these different ways to enter the rental market to determine which best meet their individual needs.

Single Family Homes

  • Renting single family homes is the easiest way for new investors to buy real estate and enter the rental market. By choosing homes in good neighborhoods, investors should have little trouble renting their properties or selling them when needed. The primary downside of single family properties is selecting and dealing with tenants. Hiring a property management company to screen tenants, deal with the late night service calls and other problems can reduce the stress, but the costs will also reduce the profitability of the investment.

Multi-unit Buildings

  • Apartment buildings have the potential to provide a large stream of income that will produce significant profits. However, multi-unit buildings also hold the possibility of requiring substantial investments for maintenance or repairs. Investors may have to invest large sums of money into the building to make the property desirable to prospective renters. Multi-unit buildings are also more dependent on a strong local economy to produce the number of tenants needed to fill the building. These large buildings are more difficult to sell due to high costs and a limited amount of potential buyers.

Commercial Real Estate

  • Commercial real estate can vary from storage facilities to shopping malls. As with residential properties, the cost of these properties will have a wide range. Renting commercial properties often has less risk from destructive tenants, but the number of prospective tenants is much smaller. This can lead to properties being on the market much longer, both when renting and selling. Combination residential and commercial properties, most often with a street level commercial unit and apartments above, can present an opportunity for a compromise real estate investment.

REITs

  • Real Estate Investment Trusts, REIT, provide a way for investors to gain exposure to the rental real estate market without the significant investment of time and money required to purchase and hold real estate. A REIT is a trust that may hold various types of real estate properties, including residential and commercial rental real estate. A REIT’s management may choose to specialize in certain types of real estate or real estate in certain areas. REITs buys and sells on the stock market like any other stock which makes getting into and out of the investment quick and easy.

How to Borrow Money for an Investment in Real Estate

Investing in real estate often requires you to borrow money to make a purchase, but the process of borrowing money for investment property differs from that of traditional mortgage lending. If you plan on getting involved in this type of investment, you may have to look for some alternative means of investment if you want to overcome the hurdles that come with financing an investment property. Besides finding the right property, this is one of the most important factors in the process.

Instructions

  1. Apply for a mortgage with a traditional lender. When financing a rental property with a traditional mortgage, you may need to put up a larger down payment than normal. Some lenders require you to come up with at least 20 percent down for rental properties. You will also need to have a high credit score and a steady income to qualify for this type of loan.
  2. Work with a “hard money” lender to get access to the money you need. Hard money lenders regularly lend money to individuals who have low income or a bad credit score. When you use a hard money loan, you will pay a higher interest rate than what you would normally pay with a traditional mortgage.
  3. Use a home-equity loan to get money for the investment property. If you are a homeowner with a large amount of equity, you could potentially borrow against this equity and use the money to buy an investment property. To qualify for a home-equity loan, you will need a strong credit history and enough income to pay back the loan. Some lenders also require you to have a certain amount of assets on hand.
  4. Find investors to work with you on this investment project. Create an investment proposal and show it to your friends and family members. Some may be willing to give you money to purchase the property. This may be combined with a loan, in some cases. The investors could help you come up with the money you need for a down payment.

10 Quick Facts About Property Investment


1. Leverage enables you to borrow other peoples money;
2. Compounding will let you maximise the benefits of borrowing other peoples money;
3. Historically the longer you hold onto a property the greater the capital appreciation, which is what makes you wealthy in the long-term;
4. Roughly around 10% of Australians own an investment property which is negatively geared;
5. New properties tend to have higher rates of depreciation compared to old properties;
6. Capital city areas continue to have growing populations and increased property demand;
7. Properties have grown by over 14 times since the 1970’s in Australia;
8. The interest component of mortgages on investment properties is tax deductible, which is why many people feel interest only loans are the best option for property investors;
9. Units and Houses have performed very closely over the last years in Australia;
10. Property near public transport tends to be in more demand compared to property far away.

How to Start a Property Investment Company

Provide people with a place to call home while making money with a property investment company.
Many people purchase a home or property to serve their own needs, such as a place to live. While most know that purchasing a home is an investment since many homes sell for more than they were purchased for, few consider expanding on this single purchase by buying more properties and establishing a business. However, those with an interest in working for themselves and having their own business can do so by learning how to start a property investment company.

Instructions

  1. Craft a business plan. Analyze the financial aspects of starting a property investment company by learning how much money is required to start the company as well as what potential for profit exists based on your location. Develop a plan for how you will market and staff your company while also expanding it and making it profitable. Include all of this information in a written business plan for your property investment company, which you can create using the business plan information available from the website of the U.S. Small Business Administration.
  2. Apply for funding. Access your credit report from one of the three credit bureaus to learn what credit score you have as well as review your report for any mistakes prior to applying for a business or commercial loan. Speak to a loan officer to find out if you qualify for a loan based on your credit report as well as the business plan you’ve drafted for your property investment company. Consider taking on a partner who has the monetary resources or capital you need to start the business if you can’t qualify for loans on your own. Know thought that with a partnership, profits from your company will be split based on your agreement.
  3. Register your company. Obtain an employer identification number (EIN) from the Internal Revenue Service (IRS) by calling 800-829-4933 or completing the form on the IRS website. Determine what sales tax laws are in effect in your region and whether they apply to your business by visiting with a representative from the department of revenue at your state and city level. Comply with any sales tax regulations that exist as well as licensing regulations such as a local business license from your city government.
  4. Buy property. Determine if your company specializes in residential or commercial property or a combination of the two. Hire a commercial real estate agent to assist you in finding your initial property to start your company as well as subsequent properties to grow your business. Know how to check property values with your local property assessment office to ensure you aren’t paying too much for a property. Consider getting your license as a real estate agent as this cuts down on your expenses since you don’t have to pay a realtor for each property sold and purchased by your company.
  5. Purchase insurance. Speak with local insurance agents in your community to get quotes for insurance on your property investment company. Obtain both liability and property insurance since this protects your business from lawsuits from tenants injured in or on your property while also protecting the physical structure from damage caused by fire and natural disaster. Add additional insurance to your business as your company grows and you acquire more property.
  6. Hire staff. Find an office assistant to help you manage and operate your property investment company especially if you are out of the office frequently inspecting current properties and looking for new ones. Retain a lawyer to assist you in developing leases and contracts for your company. Employ a maintenance person or crew to make repairs, renovate outdated properties and maintain the landscape of the properties you own. Consider hiring a property manager as your grow to take over the daily management of properties and free you up as the owner to focus on growing and expanding the company.

How to Recognize Property Investment Scams

Real estate has long been a solid way to make money, but that doesn’t mean every property investment is good idea or even legitimate. There are con artists at every turn who would like to scam you out of your money, leaving you poorer but wiser. Here’s how to recognize property investment scams.

Instructions

  1. Know you’re vulnerable. Experts say the people most likely to be the victims of property investment scams are financially astute. Con artists know that they need to start with someone who is open to investing instead of being more conservative with money. Be careful not to be overconfident, since scammers can set up elaborate schemes that can fool even the best.
  2. Remember the old adage, “If it sounds too good to be true, it probably is.” Be skeptical on promises of high, fast returns. Nothing of that nature comes without high risk, so consider what you can afford to lose. Be wary of email or infomercial offers, since they are favorite delivery methods for people who traffic in property investment scams.
  3. Check everything out. You can often recognize property investment scams just by doing your homework. Look into the company making the offer, and find out their history, record and background. Figure out who the directors are and look into their background. Let an accountant or financial advisor look over the paperwork, and then have a lawyer read everything before you sign.
  4. Understand how you will make your money. The more complicated the deal, the more important it is to look into the exact way your investment will create a return. Investigate any tax laws, especially in overseas countries, that backers are relying on to bring you money. Be sure the offshore investment is legal.
  5. Ignore pressure. One sign of a property investment scam is when backers are in a great hurry for you to sign. Hurrying only increases your risk of being a victim and losing a substantial amount of money.
  6. Watch for affinity fraud. That’s the name for how con artists use your religion or race and purport themselves to be “like you.” Once they have your trust, they can work their property investment scams.
  7. Keep up your vigilance. Even if you start seeing the promised return on your investment, don’t assume that all is well. Some con artists pull off property investment scams by paying out money for a time, then disappearing when they have a certain number of victims.

Is Rental Property a Good Investment?

Rental properties can be a profitable investment.

Rental property can provide investors with various sources of income. However as with any investment, rental property investments do have risk, and investors can lose money. To determine whether owning rental property is a good investment, investors should understand the key points needed for a successful rental property and decide for themselves.

Rental Prices

  • Buyers should consider the cost of the rental property in relation to the expected amount of rental income that the property will generate. Buyers should compare prices of rental properties against the expected rental income for each building to determine which properties are selling at the best price. One way to compare rental properties is to look at how long it would take the rental income to pay off the building. For example, it would take 10 years for a building that costs $300,000 and produces $30,000 a year in rental income to pay for itself (not including financing costs).

Rental Market

  • Sellers of rental property should be willing to provide buyers with information on current and past rental income. However, this does not indicate that the future rental incomes will be the same. Buyers must consider the area and local economy. Areas dependent on one large employer are less stable than those with multiple employers. New building in the area will also work to depress the rental market as newer spaces come onto the market and compete with the older buildings for tenants. Rental property owners must carefully consider the property’s future prospects.

Costs

  • Owners must consider financing costs before buying a rental property. Interest rates and fees for loans for rental property are often higher than rates and fees for loans to purchase a primary residence. The costs of maintaining a rental property can also create a significant expense. Owners must keep properties in good repair at all times to maintain income from rentals and assure compliance with regulatory codes. While insurance covers many significant expenses, owners must maintain access to money to cover deductibles and uncovered expenses.

Management

  • The management of a rental property is an area that can produce both significant costs as well as hassles for the rental property owner. Management of the property includes screening and selecting tenants, dealing with tenants (while following all applicable laws and regulations), and caring for maintenance issues. Owners can choose to use a property management company, but owners should consult with these service providers before purchase to determine the costs that they will charge.

How to Make Money With Rental Properties

With a smart investment, you can make money with rental properties on a recurring basis.The advantage of making money with a rental property is that you will get money month after month. Although some of this money will go to pay off the original mortgage, with a good rental property investment, you can practically count on a steady flow of income.Read the short guide below to find out how to make money with rental property in basic steps.

Instructions

  1. Talk to professionals and other rental property owners. Be in touch with real estate attorneys, real estate agents, accountants, and other landlords to learn what you can about the rental business. Keep in touch with these professionals consistently both before you buy your rental unit and after you are already renting it out. These people guide you in making the best decisions and therefore the most money with rental properties.
  2. Research the real estate market. Research prices for different types of rental properties in your area. Research both their selling prices and rental prices. You should also analyze trends and future projections.
  3. Decide where you will buy. Location is the key issue when it comes to real estate. You need to choose a location where rentals are in demand and property values are within your reach.
  4. Choose the type of rental property to invest in. Do you want to rent an entire apartment building? Are you interested in just renting a single family house? There are many types of rental units to choose from anywhere from small apartments to large 2 story homes.
  5. Find properties that match your criteria. Look for properties that are good investment deals. Try to find a rental property that is low in value compared to other similar properties. Also look for properties that are in good condition and will not require many repairs. (You might want to invest in a rundown rental property though if you find that it is a very good deal and the repairs are facial and not structural.)
  6. Buy the rental property. This process will probably involve taking out a loan.
  7. Conduct whatever repairs are necessary to get the rental property ready to be lived in.
  8. Find tenants to rent your property. Make sure to run credit reports on prospective tenants. Getting good tenants is important if you want to count on making money month after month. Tenants who do not pay on time or do not pay at all will destroy your rental property cash flow. You should also be careful because there are laws governing evicting tenants, so once a tenant is in your property, you might not be able to evict him easily or at all.
  9. Manage the apartment yourself or hire a property manager (or property management firm). There are many tasks to perform on a regular basis including collecting rent, paying taxes, fixing up repairs, paying insurance companies and more. If you do not have time or expertise to deal with these yourself, hire a property manager to do these jobs for you.

How to Choose Investment Property

Owning real estate is a great investment, especially in a volatile marketplace. However, while real estate in general is a great investment, it is important that you choose the right investment property. Choosing the right investment property takes hard work and a fair amount of research, but if you choose wisely, your investment property will be much more valuable to you in the future.

Instructions

  1. Keep the real estate motto “location, location, location,” in mind. You want your investment property to be in a prime location so that you can capitalize fully on your investment. Choose a town or city with lots of potential and growth. Pick an investment property in a location that will make it easier for you to rent it out or sell it for a profit in the future.
  2. Don’t buy a cheap home or building just because of its low price. There is probably a reason that the land is so cheap on the real estate market. Do your research to make sure that you are getting the best possible investment property.
  3. Choose the type of investment property you are interested in buying. If you are new to buying investment properties you may want to start out with a relatively simple investment property like a single home as opposed to buying a more complicated investment property like a trailer park.
  4. Get a general idea of property values, rental rates, and mortgage rates in the location you have selected.
  5. Contact a real estate agent. You want to work with a reputable real estate agent who has a reputation as someone who knows a lot about buying investment properties. Don’t settle for the first real estate agent you meet with. Make sure you get a real estate agent who is comfortable with investment property management.
  6. Find an investment property that interests you and do your research. Find out why the current owner is selling the investment property.
  7. Get investment property financing. You may need to apply for an investment property loan. Investment property loans are easy to come by if you have a sound investment property. Prove to the loan agency that their investment property loan is safe by showing them that the investment property has potential to earn money. Getting investment property loans and investment property financing isn’t hard, but if you can’t come up with the full amount in your own money with the aid of investment property loans you may also need to get an investment property mortgage.
  8. Make an offer and buy the investment property with the aid of your investment property loan and low investment property mortgage rate.

Tax Deductions for Investment Property

Window displaying a for rent sign.
Buying and maintaining investment properties is an expensive business. Real estate investors, namely landlords, can increase their profits from rental property by taking advantage of the many tax breaks available. Owners can deduct all or part of the cost of owning single-family or multi-family rentals. Investors should consult with a tax professional to determine how exactly each tax deduction applies to them.

Deducting Mortgage Interest

  • Mortgage interest is one of the largest and most consistent tax deductions for rental property owners. Loans for non-owner occupied homes tend to have higher interest rates than mortgages for primary residences. Because more of your monthly payment goes toward interest in the first several years of a mortgage, your deduction will shrink as you pay off the loan. You can also deduct interest on second mortgages used to improve or repair rental real estate.

Depreciating Rentals

  • You can’t simply write off the purchase price of a rental property in the year you buy it. Instead, you deduct a portion of the expense of buying an investment property over several years. You recover the cost of acquiring a rental home through a method known as depreciation. Depreciation, or the decrease in your rental home’s value which occurs over its useful life due to wear and tear, only applies to the structure itself because the land it sits on doesn’t depreciate.

Repairs to Your Rental

  • Tenants turn to their landlords when a rental needs repairs. You can deduct the cost of ordinary, necessary and reasonable repairs you made to restore the home’s condition. However, components that you replace, rather than fix, usually aren’t deductible. Replacing or upgrading items in your rental property usually constitutes an “improvement,” which makes the home better, instead of simply restoring it.

Costs to Travel

  • Depending on how involved you are in your rental’s day-to-day management activities, you likely spend money going to and from your property. You can deduct the cost of travel for your landlord activities. Amounts you spend to repair, fuel and maintain the vehicle you use to perform your landlord tasks, and hotel, airfare and meal expenses when traveling overnight, are deductible. You can use a standard mileage rate if you choose not to deduct actual vehicle expenses and meet certain other requirements. As of 2014, landlords could deduct 56 cents per mile driven.

Payment for Professional Services

  • You can deduct wages for property managers and independent contractors who provide services for your rental property. The deduction applies to employee wages, labor costs and commissions or fees for professionals such as real estate brokers, attorneys and accountants.

Deducting Due to Loss

  • You can deduct losses if your investment property is damaged or destroyed. You can also deduct insurance premiums, such as homeowners or landlord insurance. You usually can’t deduct the entire cost of property damage, although you can deduct a portion based on the extent of your losses and the amount covered by insurance. Homeowners insurance covers fires, theft, vandalism and other perils to your rental property’s structure. Landlord coverage can also reimburse losses to personal property and provide certain liability coverage.

How to Buy Investment Property

Buying an investment property can be a very profitable decision. But don’t be fooled by the success stories that are prevalent in the media. There are many factors to be aware of before taking that risk. Here is your guide to buying an investment property with confidence.

Instructions

  1. Choose your location wisely. Lower priced homes near expressways, railroad tracks or busy intersections may seem like a great idea now, but will not appreciate as quickly as those located in desirable areas. Even if it means spending a little more, pick a location that is conveniently located near many amenities or at least part of a reputable school system.
  2. Work with a seasoned real estate agent, attorney and lender. To be successful at real estate investing, you will need to do business with people that are familiar with this niche industry. Check the credentials of everyone involved in your transaction and be honest about your expectations.
  3. Do your homework. Some investment properties could be part of a “too good to be true” real estate scam. Research the title history on the property in question and make sure that there are no outstanding liens.
  4. Calculate how much you can spend on your investment property. Your mortgage payment should be in line with what other properties in the area are renting for, or else you might have difficulty filling vacancies. You also need to keep enough money in the bank to cover everything for at least a couple months in case your renter defaults on their payments.
  5. Hire reputable contractors to handle renovations. Your investment property may need some serious remodeling before it starts turning a profit. To save money in the long run, retain licensed, bonded and insured contractors who have successfully completed projects like this before.
  6. Review any and all contracts with an attorney before signing them. Investment properties are subject to different laws than residential properties, particularly when it comes to reporting the income you are receiving. Ask your friends or family to recommend someone they trust.
  7. Make sure you have enough time in your schedule to devote to your investment property. Your tenants will need you around to handle maintenance issues, collect rent and keep up the exterior. If you can’t handle this on your own, keep enough money in your monthly budget for a property manager.