By Betsy Fallwell
“It takes money to make money” – it’s one of the oldest sayings in the book, but is it true? When it comes to property investment, the answer is a resounding yes.
With the stock market still suffering triple-digit gains and losses on a routine basis, investing in the market is volatile; for some investors, it’s still too risky. But if you’re eager to invest in something with the possibility of an immediate return, property investment could be the right path for you.
The Right Time to Buy
Today we’re experiencing the perfect confluence of factors that make property investment a wise choice: nearly historic-low interest rates and property values that are only now beginning to dig out of the basement, where they’ve been residing ever since the housing crisis descended on the market.
This gives you the opportunity to make money from property investment on two fronts. First, not only can you expect to see the value of your property rise over the coming years, expanding your equity in the property with no effort on your part, but second, you’ll be able to collect rent on your properties from day one.
Uncle Sam Wants You (to Invest in Property)
The federal government makes it beneficial to invest in property, too. Those benefits come in the form of tax breaks. While homeowners have to pay out of pocket for building maintenance, homeowners’ association dues, and property insurance premiums without any breaks from the government, landlords aren’t subject to the same tax regulations. When you’re a landlord, you can write off all of these expenses – and many more, including the cost of utilities and advertising your rental space – and reduce your overall tax burden.
Diversify, Diversify, Diversify
What’s the first rule of real estate? Location! What’s the first rule of investing? Diversify! Combine the two, and you’ve got the first rule of property investment: diversity your holdings with a variety of locations. Similar to the saying, “Don’t put all your eggs in one basket,” don’t make the mistake of putting all your investment properties in one location. Look for a variety of home styles – whether they be apartment buildings, duplexes, or single-family homes – in a wide range of neighborhoods. This will give you properties with a wide range of monthly rental fees, which will open you up to a wide range of potential tenants.
How Much Could You Make?
The first step to making money in property investment is finding the right property in a popular community. Work with a real estate agent to find quality properties in your area; consider foreclosures and short sales, which can reduce the up-front cost of purchasing a building and maximize your budget for any necessary renovations.
Once you’ve found the right property, you’ll have to secure financing. If you’re purchasing a multi-family property, you’ll have to apply for commercial financing as opposed to residential. This type of financing often requires larger amounts of capital up front, as well as higher interest rates over the life of the loan. After you buy your investment property, you may have to fix it up to bring it up to code or to make it appeal to renters.
At this point, you can begin to figure out a price for your property. Look at comparison properties in your area to see what similar apartments or houses rent for. The better a deal you get on the purchase price and the more wisely you spend money during any repairs or renovations, the wide the profit margin on your investment.