If you are an individual with a stable job and living your life with an annual income, having to earn an extra income can come in handy if any unexpected expenses such as medical emergencies etc arise. Investing in real estate is the common investment strategy used by many nowadays. Even though it takes a certain amount of money to get started, becoming a landlord and earning a passive income can help you be financially secure in the near future.
What is an investment property?
Investment property is one of the modern methods of purchasing real estate property with the utmost intention to earn an income or a return of investment of the same by the means of rental income of resale of property in the future or even both.
Types of investment property
- Residential: This is one of the most common types of investment made by a large population. Investors make their investments by purchasing residential properties and rents them out to tenants to collect monthly rents. The type of homes includes single-family homes, townhomes, apartments and other types of residential structures.
- Commercial property: There is a different section of properties other than residential property. Investors from corporations, purchase and invest in properties for commercial use or business use and generate income. Even though it has a higher return than residential properties, the cost of maintenance and improvements to be done is comparatively much higher. The properties include apartment buildings, retail stores, etc.
- Mixed-use: This is a combination of both commercial and residential property. A property can have a retail store or a commercial use along with the use of residential purpose in the upper portion of the property for residential use.
Benefits of purchasing investment property
- Source of income: The main and general idea of having or investing in investment property is having to generate a secondary source of income. It is mainly opted by people planning for early retirement or be financially secure for a secure tomorrow. This type of income will be taxed completely differently than the usual employment income.
- Diversifies your investment portfolio: The main pro or advantage of investment properties is that it diversifies your investment portfolio making it spread out your investments in different stray of lines for a financially secure tomorrow.
- Flexibility: If a financial crisis tend to arise and the situation of the market trend is comparatively poor, instead of selling your property at that time, you can have the flexible option to rent out the property till the market improves making it a better position for you to profit off for your company.
Tips for buying an investment property
A common factor in the increase in the wealth of some people is the habit of investing in investment property. It is one of the sound and a smart investment. Spending money on such investments is a huge deal and is to be dealt with carefully. Here are a few tips for buying such investment properties:
- Right location: Location is one of the key basic and most important factors to be considered before jumping off to the decision in purchasing a property. A place with easy access to amenities such as hospitals, supermarkets, schools etc can help in increasing the return on the investment. A property with low taxes, low crime rates, access to public transportation and also a growing job market makes it an easier pool for potential renters.
- Finance or buy your new property: If you have a determined investing goal, you will find no problem in deciding on whether to buy with cash or finance your investment property. Paying cash can generate a fixed monthly cash flow returns whereas financing it provides a greater return in general.
- Cost of borrowing: In the case of investment property, the interest rate is generally high compared to the traditional mortgage interest rate. If you plan to finance your purchase, you are in dire need of a low mortgage interest payment so that you won't have to go through the trouble and factor of losing most of your monthly profits.
- Understand your legal obligations: If you plan to be a landlord or a tenant owner, then it is essential to understand the laws related to the rental-landlord system to avoid and be familiar with all the legal problems that can arise along with all the rights for you and your tenants to avoid the possibility of getting sued.
- Have insurance: Invest a small portion in getting coverage for you and your property to protect your new investment against all the uncertain factors that can directly or indirectly affect your new property or assets.
Owning a rental property is one of the greatest ways to earn long-term wealth in the means of passive income. Even though it comes with a risk factor, it can be a great source of income for you and make sure you are financially secure in case you run into some trouble in the near future.
