New To Investing? Here's What You Should Know.
Have you always dreamed of owning an investment property? Or are you curious and just dipping your feet into the investment waters? Either way, being new to the real estate investment arena can bring on some major challenges. Here’s what you should know if you’re just starting out.
Focus On The Big Picture
What do you want to gain out of owning an investment property? Are you eager to earn more money, have more tax advantages, or have a lifestyle where you can benefit from the property yourself? These are all key areas to hone in on before you invest in a property.
Find The Market
This is your chance to research several different states, cities, and neighborhoods to find a real estate market that is right for you. If the city doesn’t have the best job market or isn’t attracting people anymore, that’s not going to be an area you want to buy in. Without a steadily increasing job market, you won’t have an occupant that will be willing to rent from you. Seek out properties that have a high expectation of occupancy.
Property Management
On the fence about hiring a property manager? Typically, hiring a skilled property manger will help make your investment a passive one. Find one that has a prime communication style, knows how to keep a property well-maintained, and help you find and retain a tenant. Keep in mind, a property can go two ways: continuously profitable or bring on some pain.
If the things above align, you are more than likely ready to move on to the finances and searching for properties.
The Financials
According to Forbes.com, an acronym that makes it easy to remember your operating expenses (minus the mortgage) is VIMTUM. This acronym stands for vacancy, insurance, maintenance, taxes, utilities, and management. Like all investors, you will be seeking a monthly profit. The equation you will be using is:
Rent - (Mortgage + VIMTUM) = PROFIT
To get ahead of the curve, you should utilize outside funding. To do so, there are three ways that you can benefit:
Using a tenant’s rent as a passive income stream.
A loan from a bank to invest.
Tax incentives to maximize profits
According to Forbes.com, after you have enacted the above steps, you will now have five simultaneous profit centers: Appreciation, Cash Flow, Loan Paydown, Tax Benefit, and Inflation-Profiting. To learn more about each of these factors visit their website here.
If you have more questions about investing or would like to see what the next steps are, contact us today to talk with one of our experienced REALTORS®.
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