Investing in real estate through an investment property is a great way to add additional cash flow and increasing total equity over time. Investment property can be as simple as finding a bargain superior location or identify an ideal rental home located in an area of high price and can easily attract tenants. The following steps are general guidelines to identify and buy an investment property that will provide positive cash flow and a general increase in positive capital when the time comes to sell.
For houses used as rental investment, the general rule is that they charge around 1 percent of the purchase price as the monthly rent. For example, if an investment house is purchased for $ 150,000 then the monthly rent must be in the amount of U.S. $ 1,500. Again, this is a general rule. Not applicable for the most expensive homes, being larger houses tend to rent from 0.8 to 1 percent of the overall price, this due to lower demand for large homes in the rental market. You’ll need the help of a real estate agent for the rental prices in the area in which there is the potential investment house and verify that a monthly rental rate of 1 percent is feasible based on what houses are selling.
Once a potential investment property has been identified, the next step is to analyze what repairs, upgrades and expenditures should be made for the house to be profitable. This includes adapting the house according to the codes of the state holiday. However, these codes vary from state holiday, usually required to have smoke detectors in every room of the house and pass an inspection process of the certified home.
Next, check with several mortgage to understand the options available mortgages investment companies. Rates and closing costs vary dramatically, so it is essential to compare to get the best mortgage package possible investment. Due to the increased risk of the mortgage company, also keep in mind that mortgage investment funds generally require upfront or initial payment in the range of 20 to 25 percent and the rates are usually a 0 , 5 and 1 percent higher compared to primary residence mortgages.
Gathers information about the tax rate of the area where the home is located. Create a spreadsheet summarizing costs: mortgage, taxes, improvements, repairs and administrative expenses of the company, and must deduct from the monthly income from the rent. This will provide information on whether the investment is positive or negative flow of cash. If cash flow is negative costs are greater than the rental income then it is advisable to get away.
If there is a positive cash flow, the next step is to understand the total percentage that will generate the investment house based on the money invested. Think of the house like stocks or bonds, where the money is put in the stocks or bonds and the return is in terms of dividends or returns. A house investment returns the money in several ways, including rental income, reduction of capital, depreciation of assets over more than 27 1/2 years, and the benefits of tax deduction. Rental income and capital reduction are the basic elements to be considered and are easier to calculate. Determines the portion of your monthly mortgage payment is the capital and the part that is of interest. Add the portion of capital your rental income.
Now divide the sum of your rental income and principal amount of one year by the total amount of money invested in the house as a down payment, closing costs and repair costs. This is the percentage of total annual return of money put into the house ignoring the investment house appreciation, tax benefits and depreciation of more than 27 1/2 years. Use this figure as an indicator of whether it is worth the investment or not. For example, if a stock or bond that pays a dividend is 2.5 percent and the investment property will generate 6 percent, then it is clear that real estate investing is a better value.
Finally, define if the investment property should be managed by a company or for yourself. This depends on how informed you find on the rent laws and the amount of time you have available to invest in managing a rental property. The rental management companies charge up to 10 percent of the monthly rental income. You must add the rental management commission on stage the percentage of return and cash flow and determine whether it is beneficial or not.