Factors to Consider When Investing in Real Estate: Part 2
Last week, we shared with you a couple of factors you should consider when investing in real estate. From deciding whether you should flip or buy and hold a property to choosing whether you should purchase locally or long-distance – weighing these options are essential before starting your investment property search.
Other factors you should consider include the following.
Decide if you want to be a landlord. In addition to identifying a property to buy, you’ll need to decide whether you want to be a hands-on landlord or hire a management company. Of course, if you’re a long-distance investor, a property management company is mandatory, so you can have someone to check on your property condition and handle routine maintenance, as well as emergencies.
If you don’t mind maintaining your property on your own, vetting potential renters and taking care of unexpected repairs, you can save money by being a landlord yourself. Some investors opt to save the property management fee, which averages 4 to 7 percent of the rent. However, you want to consider how much time you will need to spend on your landlord duties and whether you are better served by outsourcing that job.
Be sure you understand the finances, taxes and local laws. While many real estate investors pay cash for their purchases, you can take advantage of low-interest financing for your investment purchase. Generally, mortgage loans for investment properties require a down payment of at least 20 percent and excellent credit. If the property you’re buying has a history of renters, you can include your anticipated rental income as part of your loan application. You’ll also need to be prepared for potential vacancies when you’ll have to carry all the costs of ownership without the benefit of the rental income.
When you own investment property, you’ll need a tax adviser to help you navigate the tax implications of your investment. You should also understand the local laws that affect your property investment. Some areas have tenant-friendly laws that make it difficult for property owners to evict tenants even if they don’t pay the rent; other jurisdictions are friendlier to landlords. You may even need a license to be a landlord in some areas. You also will need to comply with Fair Housing and Equal Opportunity (FHEO) laws and all other local codes that apply to the condition of your property and your interactions with your tenants.
If you’ve decided to invest in real estate and need help getting started, consider Long & Foster | Christie’s. We offer multiple divisions that can help you find, finance and insure your home, and our team of professional real estate agents can help you identify properties that fit your portfolio and financial goals. Additionally, Long & Foster’s property management division can provide expert landlord services should you choose to buy-and-hold rather than flip your investment property.