Connect with us

Investment

Is rental property a good investment? all you need to know

Real estate brokerage agent in the process of analysis and decision-making

Georgeta Olaru / 500px


With stocks plunge and escalating inflationyou may be wondering if buying a rental property is a good place to park your money.

It sounds simple enough: buy a house, rent it out for a price that covers the mortgage, and put a little stable money in your pocket – all while land values ​​rise. More, rents are skyrocketing across the United States

But there is a lot to consider, from rising mortgage interest rates to local markets to find reliable tenants. There may also be surprise expenses. Here are some answers to common questions about buying a rental property:

Is it worth having a rental property?

It can be – under the right circumstances, over time, and depending on your financial situation and goals.

If you are able to rake in even a few hundred dollars a month once all expenses, including taxes (income and local property) are paid and you have contributed to a reserve fund for emergency expenses, a rental property can provide a reliable return over time. “Assuming the property is profitable, having that cash flow gives you the opportunity to buy more assets of the same type – to buy more real estate – or to buy other types of properties. active when [real estate] is out of favor,” says Cynthia Meyer, Certified Financial Planner (CFP) at Real Life Planning in Gladstone, New Jersey, who works with real estate investors.

Are rental properties a good investment right now?

If you have your financial house in order, especially when interest rates rise, rental properties can be a good long-term investment, Meyer says.

A rental property should generate monthly income, even if it is only a few dollars initially. Do the math to make sure the property you’re considering is right for you. Consult a local financial advisor or real estate expert.

“One thing I’ve asked people a lot is ‘does the deal make financial sense? Don’t show me something, like, that loses $300 a month and expect me to tell you it’s a good idea because it probably isn’t,” Meyer said.” At a minimum, there should be no net cost of ownership for the property.”Is managing a rental property a lot of work?

A lot can go into setting up your rental property including insurance, homeowners association fees, utilities, advertising, cleaning, repairs over time, increase mortgage payments and taxes are critical factors, to name a few.

Some rental property owners hire management companies to look after the property, with fees typically between 8% and 12% of the monthly rent collected.

As an investment, a rental property can be a slower — but reliable — source of income than flipping a house during the height of a booming real estate market. Although home values ​​have skyrocketed over the past two years, that breakneck pace is slowing.

How much profit should you make on a rental property?

Once you’ve done the math, and if you intend to keep the property for a number of years, even a small profit “per door” or unit can be a valuable source of income over time. Meyer said.

For example, a net profit of $100 per month (once everything is paid for) can add up. If rents typically increase 3% to 5% per year, your profit should also increase.

“After 20 years, that’s a pretty powerful rental yield,” says Meyer. “And that doesn’t include appreciation.”

What type of loan do you get for an investment property?

Landlords of rental properties can request mortgages like homeowners, but with very important differences. For one, the down payment is usually much larger.

Most lenders require a down payment of around 25% for a mortgage on a rental property, according to experts. This contrasts with the 6-7% paid by landlords in recent years.

Lenders consider a mortgage on a rental property to be riskier than a regular mortgage because an investor’s home loan is likely to take priority in difficult times.

What is the best way to finance an apartment building?

Of course, if you can buy a property for cash and still have funds left over for a buffer, that’s ideal. Keep in mind that real estate is considered an “illiquid” asset – an asset that you cannot quickly turn into cash in your pocket. Most real estate investors require or want a mortgage.

Before you apply, make sure you’ve worked out your budget, researched how to attract tenants, and have a clear idea of ​​property management costs.

What credit score is needed for an investment property?

Lenders tend to offer the best rates to borrowers credit scores of 760 or higher.

“Could you get a home loan if your score was 680 or 700? Probably, but you’d just pay more interest,” Meyer says.

What percentage can you borrow on a rental property?

It depends. In 2022, as interest rates rise, the strategy of buying a dilapidated property, fixing it, raising the rent and then borrowing against that property to buy another becomes more difficult, Meyer says. Lenders want to know that the mortgage will be paid in difficult times and will carefully examine your property before granting a second loan.

Buyers of rental property “need to be even more careful about their numbers and their interest rate assumptions,” Meyer noted. “Because they won’t be able to refinance and take equity out and this property will still be cash flow positive if rates are twice as high as they were a year ago and half.”

#rental #property #good #investment

Click to comment

Leave a Reply

Your email address will not be published.

Trending