Why invest in property? - Option Home Loans

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Option Home Loans - Why invest in property?

Investing in a property can bring you great returns. The rental income allows you to borrow and get the benefit of leverage by helping you pay the interest on your mortgage. Over the years the rental income received from property investments has increased and this increase has outpaced inflation.

“Real estate investment is the purchase of a future income stream from property and can offer several advantages over other types of investments, including potentially higher returns, stability, inflation hedging, and diversification.” (Investopedia.com)

Investopedia recently listed some of the key reasons to consider investing in real estate:

  1. Competitive risk-adjusted returns
  2. High tangible asset value
  3. Attractive and stable income return
  4. Portfolio diversification
  5. Inflation hedging
  6. The drawback: lack of liquidity

“Real estate is a distinct asset class that is simple to understand and can enhance the risk and return profile of an investor’s portfolio. On its own, real estate offers competitive risk-adjusted returns, with less principal-agent conflict and attractive income streams. It can also enhance a portfolio by lowering volatility through diversification. Though illiquidity can be a concern for some investors, there are ways to gain exposure to real estate yet reduce illiquidity and even bring it on-par with that of traditional asset classes.” (Investopedia.com)

But how appropriate would this type of investment would be for you and your situation?

“Rental properties can generate income, but the return on investment doesn’t typically happen right away. Rental property investments are also risky because of how many variables can affect its performance, like the housing market or your ability to keep it rented. As with any investment, rental properties should be viewed as a long-term investment, not an instant cash cow.” (Kiplinger.com)

Kiplinger.com pointed out expenses you should consider when investing in property:

  1. Financing: the amount you pay per month in principal and interest
  2. Homeowner’s association dues: fees you pay for community amenities
  3. Property insurance: the insurance you carry on your property
  4. Property taxes: what you pay in state and local taxes
  5. Vacancy: the amount of cash you need to cover expenses when you don’t have a tenant
  6. Your time: anytime you put into managing the property reduces the return on investment

To cover the expenses and getting profit – you’ll get your revenue (Kiplinger.com):

  1. Rental Income: How much you can charge for rent each month
  2. Mortgage paid down: How much of the property you own
  3. Change in property value: How much additional equity you have beyond the amount of the mortgage you have already paid down, based on current housing and rental market prices

There are things to consider when investing in a rental property. Fitsmallbusinesses.com listed 30 tips to keep in your mind when buying your first rental property:

  1. Use leverage to buy the property
  2. Line up your financing early
  3. Invest in single-family homes first
  4. Invest enough to be cash flow positive
  5. Invest in turnkey real estate
  6. Focus on your return on investment
  7. Know your marketing strategy
  8. Buy what you know
  9. Have a written lease in place
  10. Screen prospective tenants thoroughly
  11. Talk to the neighbors
  12. Work with a property management company
  13. Purchase a property with outdoor space
  14. Buy a multifamily property you can live in
  15. Accept rent payments online
  16. Invest in a vacation rental property
  17. Buy a property near apartment buildings
  18. Balance your risk
  19. Look for properties nationwide
  20. Know the rent control regulations
  21. Get advice from other landlords
  22. Have property inspections performed
  23. Buy a rent-ready property
  24. Choose a location near amenities
  25. Choose a property that is ideal for your target renter
  26. Do a pro forma analysis
  27. Pay attention to Economic cycles
  28. Be aware of short-term rental restrictions
  29. Factor in absorption rate
  30. Know your inherited tenants

Can you get to the investment market if you don’t have enough money for a down payment or if you don’t want to lock cash into a property purchase? Yes, you can. Biggerpockets.com published 10 ways to buy an investment property with no money down:

  1. Roll the down payment into the purchase price
  2. Negotiate a separate installment plan for the down payment
  3. Trade something other than cash
  4. Trade houses with the seller
  5. Get the seller to transfer their mortgage to you
  6. Apply for a loan assistance program
  7. Find an investment partner
  8. Find a property to rent-to-own or lease with an option to buy
  9. Get owner financing or a land contract
  10. Use a home equity line of credit form another property

Even if there are many things to consider, the actual process can be easy. If there are things that you would like to know or you would want to get advice from specialists – you can get free help from loan brokers.

Let us help you!

To learn more about investment strategies –download our e-book and let us help you build your investment portfolio so you can maximize tax savings and secure your financial future.

If you have any questions, we can come to see you in your own house to help guide you through your financial journey. At Options we have in-house financial planners, credit advisers, properties specialist and legal team to assist you by making your property investment experience an easy and rewarding process.

How it works?

At Option Home Loans, we will meet you at a time and place that suits you. As soon as you contact us or book an appointment, one of our lending specialists will be into touch.

Make your life changing decision and contact us today!
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References:

https://www.investopedia.com/articles/mortgages-real-estate/11/key-reasons-invest-real-estate.asp

https://www.kiplinger.com/article/investing/T010-C032-S014-is-rental-property-good-way-to-grow-your-wealth.html

https://fitsmallbusiness.com/buying-your-first-rental-property-tips/

https://www.biggerpockets.com/forums/50/topics/77768-10-ways-to-buy-an-investment-property-with-no-money-down