The Federal Housing Finance Agency (FHFA) reports that since 2000, the national average rate of home appreciation continues to be 4.7%. Should you calculate the average from April 2023 to April 2023, it had been 18.8%!
While these numbers are enticing for just about any investor, real estate market has its ebbs and flows much like every other market. But even if the marketplace contracts, property values typically still appreciate annually.
So with that in mind, is buying apartment a good investment?
We certainly think so, as long as you follow top tips. Learn eight strategies for purchasing a rental property being an investment.
1. Do Your Research
Contrary to popular belief, real estate investing isn't passive income. Although apartment investing is a superb way to make earnings due to its tax benefits and deductions, there is nothing passive about it. There are many tasks you need to accomplish, such as:
- Searching for properties and purchasing them
- Marketing available properties and finding renters
- Collecting rent payments
- Property management
- Scheduling maintenance and repairs
While you can work with realtors and property management companies to help you, there's still lots of hassle. If you cannot manage the home, entering the rental market may not be for you.
Instead, you can invest in investment trusts (REITs). REITs provide a method to purchase real estate without owning, operating, or financing rental properties. It's similar to purchasing the stock market.
However, if being a apartment owner is perfect for you, consider your investment goals and just what kind of property you need to purchase. Single-family homes and turnkey properties are great choices for the first rental property. It makes sense to possess some experience of real estate before investing in multifamily properties.
2. Choose the Right Location
Location plays another role, and that's the way you, the homebuyer, earn money. You would like a good investment property near to the essentials like grocery stores, good schools, and public transit. After all, premium locations fetch the highest rent prices. The location will even help determine your target audience when finding tenants.
3. Choose the best Type of Financing
Even if you have the funds to purchase investment rental properties outright, taking out a mortgage may be to your advantage. Although you'll be accountable for mortgage repayments and interest, the return on investment (ROI) is higher when you use less money upfront. Creating a down payment of 20% rather than pay 100% from the property's value could nearly double your ROI.
While mortgage interest rates are higher now, you can cover the cost in the monthly rent payment. Borrowers with higher credit scores can continue to get favorable home loan rates from lenders.
When financing, investigate the different loan options and lenders. You may qualify for an investment property loan rather than a standard home loan you would take out for the primary residence. For instance, a buy-and-hold loan can be obtained for individuals who wish to purchase and renovate a house before refinancing having a conventional mortgage.
Whichever loan you select, always seek preapproval prior to making an offer around the property. This improves your odds of closing on the property and helps reduce the have to refinance.
4. Consider All Possible Expenses
The initial costs of purchasing a house include the cost and shutting costs. But you also must think about the following:
- Homeowners association (HOA) fees
- Homeowners insurance
- Maintenance costs, repairs, and general upkeep
- Operating expenses
- Vacancy rates
Also, don't forget to include taxes when calculating expenses. This includes property and rental income tax, the second of which you pay on your yearly tax return.
Considering all these expenses, you are able to better gauge your operating income.
5. Know Who Will Manage the Property
To minimize costs, you can handle the property yourself. But it's a hefty task. You need to live close by and be available on short notice. It is a full-time job.
Hiring a house management company can help you care for all of the gritty details and handle emergencies. This is an investment but makes owning rentals effortless.
6. Know the Math
Many factors get into analyzing which property to purchase. Your goal in the rental marketplace is to make a steady profit. Thus, you need to know just how much to charge for rental. You might think about using the 1% rule as a guideline. The rule states the monthly rent should equal or exceed 1% from the cost (plus repairs or renovations).
For example, if you purchase a house for $200,000 and spend $50,000 on renovations, neglect the is $250,000. Based on the 1% rule, you need to make a minimum of $2,500 monthly. This simple calculation will help you comprehend the risk and potential gain from the properties that interest you.
Cash Flow and Appreciation
Something else to consider is property value. Appreciation is when much the value of an economic asset increases over time. In this case, just how much the house value increases annually. Typically, the larger the cash flow, the slower the home appreciates. Conversely, the faster the property appreciates, the low the cash flow.
Many investors err on appreciation, however this is really a decision you will need to make based on your individual finance goals. Property depreciation (or losing value) can be done in the short term if you choose a higher income, but it isn't common in the long run.
7. Arrange for Unexpected Costs
Many first-time real estate investors don't consider the unexpected costs of owning a rental. For example, what's your plan once the toilet starts to overflow, ruining the restroom and surrounding carpet floors?
Ensure you set aside a portion of the earned income to cover unexpected costs, as an emergency fund.
8. Know Your Legal Obligations
When you receive involved with rental property, you have to understand the landlord-tenant laws from the property's location. These laws explain tenants' rights and outline your obligations in regards to the following:
- Evictions
- Fair housing practices
- Lease requirements
- Security deposits
You and your tenants must always follow the law.
Get the Funding You Need to Invest in a Rental Property
With some real estate savvy and our tips, buying a apartment as an investment can yield excellent returns. If you're prepared to go into the housing market to get some good returns, apply now for a mortgage from The Associates Mortgage loan of Florida.