When you are just starting out as an investor, you have very little idea of how things work in this industry. You are just building your team and it is natural to make mistakes costing you dearly. However, it is a good idea to learn from mistakes committed by others and from the tips given by experts and seasoned investors. These tips help you in maximizing your profits while minimizing your risks from rental income properties.
Take a plunge only if you believe you can make a good landlord
It can be very alluring to hear the success stories of other investors earning attractive rental income. You may feel they are enjoying passive income without doing anything. But you know how difficult it is being a landlord only after buying a rental income property. Do you have the time and the skills to manage the affairs of your property and tenants? Of course, you can hire a property manager, but it still requires management skills to manage expenses and earn good returns on your investment.
Do not carry debts on your head
As an investor, you are going to repay your lender for the mortgage to buy a rental income property. In addition, you will face lots of operational expenses involved with your rental property. In such a scenario, it is wise not to carry any debts like student loans, credit card balances, and automobile loans to trouble you as an investor. In fact, it is a good idea to pay off your debts first and take a plunge into real estate investing only later.
Use OPM to finance your purchase
Real estate investing gives you the liberty to use other people’s money to become the owner of a property. Why use all your saving to buy a rental income property when you can buy it by just paying a 20% down payment? Rental income property is an income producing asset. Then why not leverage the power of financing to become the owner as your tenants pay off the installments? You can use your money to buy several more rental income properties and create wealth for yourself in this manner.
Save enough money to pay for the down payment
Buying a rental income property is different from buying a home for your family where lender may ask a very low-down payment. Not only is the mortgage rate higher but also you are also required to put in 20-25% down payment while the lender finances rest of the value for the purchase of the property. This means that you should have at least $100,000 in your bank account when planning to buy a rental income property worth $400,000. Not having enough money in your bank account and still moving ahead to buy a rental income property can create many problems at the time of closing for you.
Shop around for the best mortgage
Getting finance for a rental income property is easy. However, just because a lender is ready to finance the purchase does not mean you should jump on to the first mortgage offer from a lender. It is a financial product and lenders are looking for customers just like you need money to finance your purchase. If you have a good credit and ready to put forward the desired down payment, you can negotiate for a lower mortgage rate and other terms and conditions. Even a slightly higher rate of interest can make your mortgage costly, affecting your rate of return on investment.
If you follow these tips, you will find that your real estate investment is sound and profitable.