Buying real estate has been one of best investments in the world historically. You are probably aware of the importance and benefits to owning your own home, but have you considered buying additional property as an investment to add to your financial portfolio. By doing this, you can secure your financial future by allowing your investments to work for you.
I have written articles in the past about how to buy a home, the steps you need to take and all of the benefits that come with home ownership. If you currently are not a homeowner, I encourage you to consider buying a home when you are ready. But if you already have a home, I now want to share the advantages of buying income property and some of the important aspects of it.
When you are looking at buying income property, there are several different categories of properties you can consider. What will help you decide on the type of income property will be largely dependent on your budget. Listed below are the general categories of property and basic information on them in order of affordability:
Condos and townhomes: Typically the most affordable property to invest in is probably going to be a condo or townhome. These are usually the least expensive types of property. You will always have to take into consideration the additional cost of the monthly Home Owners Association (HOA) fee when buying a condo. But condos and townhomes can be a great investment, particularly when you are purchasing in a buyer’s market.
Single detached homes: Modest homes are typically the next most affordable type of property that you can invest in. A single detached home is another great way to invest in property.
Two to four unit properties: Another great way to invest in real estate is two to four residential units. The reason for grouping two to four units together is because lenders classify up to 4 units as residential property. Five units and more are considered to be commercial property by lenders and they handle the financing differently.
Five units and more (apartments): Apartment buildings have always been a solid and smart way to invest your real estate dollars. They provide an ongoing source of income and a way to plan for your financial future. The more units you can buy, typically the better value you can get when purchasing the property. As they say, “things are cheaper by the dozen” and there is truth to it when buying multiple units in real estate.
Commercial: Commercial property refers to retail shops, office buildings and other types of business related properties. This is also a very good way to invest in property. Commercial property has had a higher vacancy factor in the last couple of years than it has had in the last few decades. For this reason, you can find some very good values on commercial properties at the current time.
Don’t be afraid to buy a cosmetic fixer upper. There are properties that can be transformed with simple upgrades like new paint and carpet. You can typically get a better deal on a mild fixer upper, which in return is a better investment.
There are many things to take into consideration when buying income property that can save you money. One way is to manage the property yourself. By not paying for a management company, you cannot only save money, but there is also the advantage of knowing the status of your property at all times. Another way to save money is to do desert landscaping to save on water costs. You can also make sure to use the energy efficient light bulbs in all lighting fixtures. You can install a tankless water heater, which significantly saves on your gas bill.
Whether you invest in a condo, a two to four unit property, an apartment building or a commercial property you will always want to take into consideration the total monthly expenses and what the market rent is. Your goal should be to not have a negative cash flow on the property.
Also keep in mind that San Diego is still in a buyer’s real estate market, which makes it an incredible time to buy property. One of the main rules to real estate investing is to buy low and sell high. So if you are in a position to invest at this time, it is definitely something you should seriously consider.
The key to successfully owning investment property is to get good and stable renters. It is recommended to rent property at market value. If you try to always get top dollar, you are more likely to have a higher vacancy rate and more turnover. Also, when you are planning to hold on to property for a long time, it is important to plan on paying off the mortgage. This will allow you to have a much higher net profit on the property.
Trent St. Louis is a licensed Real Estate Agent and a member of the National, California and San Diego Association of Realtors. He can be reached at trent@tns.net or at his office in Hillcrest, The Metropolitan Group. DRE#01273643.
