Why Buying an Investment Property is Wise
- Posted on September 22, 2014
The definition of an investment property is a property purchased with the intent to earn a return on the investment. The return on your investment may come from rental income or from renovating and reselling the property. No matter which avenue you are contemplating, owning an investment property is a valuable investment. Here are four features that make real estate investments so smart.
1. Simple Startup
It doesn’t take much to get into real estate investing. You really only need two basic resources to get started: good credit and funding.
Good Credit: It is harder to get a mortgage on a property that you don’t plan to live in, and qualifying is more difficult now than it was back in 2008 and 2009. For this reason, it’s important that you have a solid credit history. Before you start investing, get your credit report and dispute any incorrect charges. Good credit will help you get pre-approved and qualified for the necessary loans.
Funding: Before you make your first purchase, save up for a down payment and closing costs. If you are planning to flip a property, you’ll also need to save up enough money for repairs. Without enough funding, you may be left with two mortgage payments and an unsellable property.
2. Consistent Need
Like any market, the housing market fluctuates. However, unlike some other markets housing is unlikely to vanish any time soon. People will always need a place to live. After the crash in 2008, home ownership dropped. This made it harder to flip renovated houses, but it increased the amount of people who were living in rental housing. Currently, both renting and home ownership are on an upswing. This means that you can buy a property at its current price and, in theory, sell it at a higher price.
You can’t predict exactly what will happen in the housing market, but you can be sure that people will always need a roof over their heads. If you don’t have a stomach for risk, you can still begin investing by purchasing a rental property instead of trying to flip a house.
3. High Returns
Real estate ventures can provide high and stable returns—particularly rental ventures.
Rental Property: From 1977 to 2007, nearly 80% of returns from real estate investments came from rental income (source: Investopedia). Managed correctly, a rental property can provide continuous profit, depending on how much of your property is currently being leased and how many tenants you are accommodating.
Flipping: Though flipping is riskier than becoming a landlord or property manager, it provides high lump sum returns on your investment. It can take anywhere from three months to several years to renovate and resale a property, and calculating your exact return percentage is complicated. However, flipping has the potential for a higher return than almost any other investment (source: RealMarkits).
4. Growth Potential
You can see returns no matter how small your real estate investment is. This allows you to only invest as much time and money into your properties as you are willing and able to. You can buy, repair, and flip a house without quitting your day job, even if you plan to do all of the work yourself. You will just need to give yourself a longer time frame.
Or, after you get comfortable in the real estate market, you could make flipping homes your career, and work on several properties at once. Real estate offers opportunities for solo investments as well as partnerships and the investment of time and money can be as big or small as you need it to be.
Whether you are investigating buying a share in local condominiums, or planning to flip a house in the next county over, purchasing an investment property is a smart way to earn returns, even if you want to keep your desk job.