Every successful investor knows what the numbersare before purchasing an investment property. You mightsay to yourself, "that is easy, does the rental on the property pay forthe mortgage?" That is a good start, but there are so many othernumbers that you need to know about. That is where an experiencedRealtor can help you find out what ALL the numbers are and if you can make a profit.
When you buy an investment property,most first time investors think that once they have purchased theproperty there are never any more costs. So let me gothrough with you some other things you need to consider before puttingan offer in on an investment property. Is this a multi-plex unit or asingle family home? If this is a single family home you need to look atthe appreciation over time. Is the property in a neighborhood of mostlyowner occupied homes? More owner occupied homes in an areamean higher resale value and more community involvement.
Does the property come with long term renters or isit vacant? This can either add value to a property ordecrease the value. An owner of an investment can say they charge $800a month in rent a month, but if it is vacant they might as well charge$0. No renters means no money. If the investment property is vacant youneed to consider the cost to fill it, such as newspaper ads, signs,internet, flyers, and so on. Also, if it is rented you needto consider these same costs if someone should move out. Plus if youhave a tenant move out you need to consider that you will have the costof at least one month without rental income, and also carpetreplacement, painting, etc. These are all things that need to beconsidered when planning your budget on an investment property.
Another way to save on costs is tomanage the property yourself. If you plan to do this,make sure you get a property within 10 miles. You don't want to spendall day driving to units clear across town; Remember time is money!Management costs vary, so if you are planning to use a managementcompany shop around and get references.
Who pays for the everyday maintenanceand utilities? These can add up to thousands per year inincremental costs. Who waters and mows the lawn? Who pays the water,electric, sewage, garbage etc? These are all things you need to askbefore you purchase a property. There are also the maintenance coststhat will have to be covered by you like a new roof or a failingexterior of a property.
Now for the nasty word that everyonehates to hear...TAXES! This is a number that changesevery year. It isn't a fixed cost like a mortgage payment. So if yourun the numbers and they look good, will the taxes going up next yearand you not giving a rent increase change your mind on thisproperty? It is a good idea to talk to your tax professionalbefore deciding. Remember even if you buy a property that has a zerocash flow in every month, it will still give you tax benefits that atthe end of the year will put money in your pocket.
So if you decide to get into investment property toincrease your net worth, sit down with a Realtor®and run the numbers with him/her and find out what type of propertywill best suit your needs immediately and in the future.
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