To get the most out of your investment, choose a property in a growing neighborhood and join the landlords' association.
Purchasing real estate with investment income in mind is a wise choice, as long as you are aware of certain financial and logistical implications.
Financially Speaking
An investment property purchase requires a larger down payment than an owner-occupied property. You can expect to put 20% down for a single-family dwelling and 25% down for a two, three or four family dwelling. That's a substantial difference from the minimal down payments that are sometimes accepted with an owner-occupied property. The interest rate on a loan for an investment property is likely to be higher, as well.
With regard to potential positive cash flow as a result of your investment, make sure to consider not just the PITI (principal, interest, taxes, insurance), but also a 10% vacancy factor as well as a 10% maintenance factor. These factors are easy to overlook when calculating your potential income, but it's important to be aware of these lesser known costs!
Location, location, location.
Consider investing in neighborhoods or regions that are growing and real estate values are appreciating, not stagnant or declining. In these areas, there is bound to be more demand for rental properties, which will ensure that your positive cash flow will continue regardless of the ups and downs of the economy. This requires a little research, comparison and observation that is well worth your time and effort.
Are you ready to be a landlord?
One of your greatest resources for your new role will be your local landlord's association. There you can learn the ropes about owning and managing your investment property from others who have experience. Your fellow landlord peers can direct you to further resources and be a reliable advocacy group.
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