Thinking of Investing in a Property? Here’s What You Need to Know

These days, people want more than one source of income. And the easiest way to earn a second – and often passive – income is to invest. But investing can be a high risk and a complicated thing to tackle if you’re new to it. That’s why property investment is so popular – most people already know the ins and outs of buying a house by the time they start thinking about investing, so they already have the necessary skills. However, this process isn’t as simple as just buying a property and then profiting off of it. There are various other factors you need to consider. Keep reading to find out more.

What is the 1031 exchange?

It may be the case that you’ve already invested in a property, but you feel like it isn’t bringing in enough of an income to validate you keeping it as an investment property. So, what do you do? You sell the property, and invest in a new one, right? Unfortunately, this will cost you a lot of money. Luckily, there’s something to help you with this – the 1031 exchange. This means that if you sell an investment property and use that money to invest in something similar (so, another investment property), you may be exempt from certain taxes. If this seems like a situation that could work for you, have a look at 1031 exchange examples and case studies.

What is the purpose of this investment property?

There are various ways to use real estate as a way to earn an extra income, which is great since you’ll have a lot of options. However, it’s a good idea to decide what you want to use this investment for before you buy it, as there are certain things you need to look for depending on how you want to use the property. Common uses for investment properties include renting it out for money or using it as an Airbnb. You could also buy a cheap house and then revamp it before you sell it at a profit.

What should your budget look like?

If you’re familiar with real estate or investment, you’re aware of the fact that budgeting plays a big role in both. However, you can’t necessarily budget for an investment property in the same way that you would for a normal property (one that would be for personal use, that is). The reason for this is that a normal house, that you buy for living purposes, will only be an expense. While buying an investment property is also an expense, it will generate an income as well, if all goes according to plan. Naturally, you need to factor this potential income into your budgeting. It’s vital to remember that this income isn’t guaranteed. You need to be reasonable when setting up your budget so that you can avoid debt.

What about maintenance?

While there are rules you could include in contracts that may make other people liable for damages, ultimately, you are the property owner, which means the responsibility of maintenance will always be yours. Keep in mind that maintaining your own house as well as an investment property can be draining; physically, emotionally, and financially. It’s best to try and get a low-maintenance property to invest in (unless the purpose is to flip it, of course). It’s also a good idea to put aside a portion of whatever monthly income you receive from the property and create an emergency nest for the real estate so that you have something to dive into if any unexpected damages should occur.

Which location should you choose?

When buying a home, most people have certain things that they look for in a neighborhood. If your investment property is in a bad neighborhood, you’ll likely be able to buy it at a lower price. However, if it’s in a good neighborhood, you may be able to find tenants much easier, and also ask more if you’re renting it out. It’s important to weigh these pros and cons and find a neighborhood that ideally offers you a balance between the two.

What about a contract?

No matter how you’ll be using this investment, you must have a legally binding contract. Since most ways of utilizing your property investment deal with other people living in said property, you should have a set of rules for them to follow, laid out in a contract. This will allow you to take certain steps if these rules are not followed, or if your property is damaged. If you need some help setting up a lease agreement, click here.