As the new year begins, so do new opportunities. Entering 2021, there is no better time than now to buy an investment property with a little help from our real estate specialists at Santa Cruz Properties.
It’s no secret that buying land can be a hassle, especially when you are looking to start an investment property. But buying owner-financed property in Edinburg through our company simplifies the land buying process, clearing a lot of the red tape that traditional lenders demand.
The Basics of Buying an Investment Property
As we all know, buying an “investment property” to generate a source of income–be it through renting out the property or adding to his property value then selling–can be a great way to bring in extra income to build wealth over time.
Because buying an investment property can be intimidating to both newcomers or veterans in the industry alike, there are some things to keep in mind as you begin the process. Here are some tips to follow so that you can feel at ease when going through the process:
1. Decide if buying an investment property is the right move for you
Buying an investment property isn’t the right move in real estate for everyone. However, investing in real estate is a great way to generate a steady income. Some questions to ask yourself when looking into investment properties are:
- Do you have enough time? – Investment properties require a lot of one’s time, depending on what exactly your plans to generate revenue are. Even if you decide to hire someone to manage the property, you still might have to be involved in the process quite a bit.
- Are you looking for a liquid investment? – Unlike other parts of real estate, investment properties are not considered to be a liquid investment. If you want to get a fair selling price for your property, there’s a chance you might have to wait months to sell.
- Are you ready for unpredictability? – Investment properties can be a great source of income; however, you never know when that might stop or come to a pause. There is a good chance that rental properties can often become vacant or something on the property might break, leaving you to fix it out of your own pocket.
If you feel as if all of these are things that you could be okay with or adapt to, good news, owning an investment property could be the right choice for you!
2. Lock in financing for the property
From a traditional standpoint, financing an investment property requires you to have excellent qualifications. It is not the same process as financing a primary home, and quite often, not everyone has the ability to meet these standards.
Nevertheless, when looking for financing you have a couple of financing options:
- Conventional financing – Conventional financing requires you to obtain a mortgage from the bank based on your personal information such as credit score, income, and assets.
- Asset-based loan – An asset-based loan only focuses on your credit score for qualification and does not look at personal debts, income, or your employment situation.
- House hacking – House hacking might be a good option for you if you plan on building a multi-unit property and live in one of its units. Since the entire property is your primary residence, it allows you to live essentially rent-free while making a profit from renters of your other units, but it must be stated that this option is only available if you are truly going to live on the premises. Claiming this and intending not to live there could be considered mortgage fraud.
- Home equity – Using your home equity to finance an investment property allows for you to access the equity you’ve built in your primary home through either a home equity loan or home equity line of credit.
- 401k loan – A 401k loan or any other retirement plan may allow you to take out a loan for your investment property. Although a 401k loan might not always be the right choice, it is a low-cost choice when financing a property.
- Owner financing – Owner financing takes away all of the authority that is placed in traditional lenders’ hands and directly places it into the buyer’s. No matter what your credit score is, owner-financing opens the door to investment property ownership.
Entrepreneurs looking to start up operations would be excited to know that owner financing for investment properties comes with less overhead and starting costs, saving them crucial funds that would normally go into processing fees and the like through traditional lenders. This unlocks the ability to reinvest those monies back into an entrepreneur’s sprouting business, and our real estate specialists can help you get started here.
3. Understand the importance of cash flow
It is important to learn what cash flow is and how to calculate it. Knowing the cost of owning the land, the costs for building your ideal place of business (regardless if you are building a condominium or starting a ranch), and your daily operation costs is important to calculating how much you need to charge in rent to offset those costs and also make you money.
Although there’s no way to completely predict how much revenue your property will bring in, it is always smart to estimate any of the above associated recurring expenses and maintenance costs, but also how long your place has remained vacant.