Real estate investment can be risky but rewarding. If you are about to embark on a real estate investment journey, read on.
The passive income potential of housing investments is excellent. It’s just important that you know a few key indicators of what makes an investment property worth your time or not.
In this short guide, we’ll allude to some important indicators that you’d do well to memorize. Keep these in mind, and you might just never find yourself standing in front of a judge declaring bankruptcy.
Mortgage Payments
If you’re not planning on having a mortgage, please move to the next section. If you are going to get a mortgage, make sure you get approval first.
It will be a complete waste of time searching for months for the right investment house to then find out you can’t get a mortgage for it. Preapproval is key.
Consider the Downpayments
Owner-occupied properties often have relatively low down payment requirements. Investment mortgages tend to be much higher, so consider this before you take one out.
What level of downpayment are we talking about? As a ballpark figure, you’ll be looking at around a 20% down payment or more.
Rental Income
Know that you need to have two years of provable experience managing one or more investment properties for the rent you receive to be considered as income. Furthermore, you need to have had insurance coverage for rent loss for a minimum of six months of monthly rent.
In addition, income from rental properties that are negative must be considered as a loss. That is a loss within your debt-to-income ratio.
The Price to Rent Ratio
This is a good tool to use to figure out the average house prices and rents in particular areas and top selling neighborhoods. To do this, you have to do is figure out the median house price of an area then divide it by the area’s median rent.
This way you can produce a useful ratio to help you make better decisions about whether to buy a property or not. Around the 15:20 ratio mark is what you should be looking for. If the ratio is much larger than this then you’re probably looking at some bad investment properties.
Check Your Cash Flow
Even if you’ve found some of the best real estate, you still need to ensure that you have a healthy cash flow. Consider that you may have to cover taxes, interest, monthly rent insurance, and more.
So you need some backup cash reserves. Remember, there will always be some unexpected payment to cover, even it’s small.
Be a Pro With Your Housing Investments
Housing investments can become one of the most rewarding endeavors you choose to do. However, make sure you are in the know about some key aspects of investing in a property before you take the leap.
So thanks for checking out this post. We hope you make some good choices when investing. Also, please take a moment to check out our blog for more posts like this.