Preparing to Purchase that First Rental Home

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Advice About Purchasing Your First Rental Home/Property
(Investment Properties: Part 1 of 5)

Before buying that first piece of rental property it is important that you answer a single question. This question has nothing to do with your credit score, your experience with real estate or how much money you can gather for the purchase. The question is quite simple: WHY are you buying an investment home?

The answer to this question will guide you towards the right kind of property and the right type of financing. Let’s look at some examples to get a better idea of reasons people use to start investing in homes.

Saving for College Tuition

This type of goal usually involves a term over a few years. Couples with young children will buy a home in an area that has shown signs of appreciating. A year or two before the child enters college the family will sell the home and use the profit to pay for tuition, books and other expenses.

In this particular scenario the couple is not concerned with making a large profit each month on the rent. They simply want to break even while keeping the home in tip-top shape to maximize the potential appreciation.

Using Cash Flow to Increase Monthly Income

Some individuals invest in rental homes because they want to earn a profit each month from the rent. In these cases it is extremely important to buy a home either for all cash or at a deep discount from the market price. Foreclosures and vacant homes are common for this example. Buying the home for cash or at a deep discount allows the landlord to charge a fair rent based on the current market conditions and pocket most of the money each month as profit.

Speculation about Future Values

Sometimes people simply buy a property at a slightly discounted price in hopes that the property value will escalate quickly due to a future event. For instance, a new shopping mall, new school or a new factory can greatly improve the value of homes in the immediate area. Buying a home in such a location and holding on to it for a few months to a year can yield a high profit.

Career Change

Some people want to begin their property investment as a means to escape their current full time job and start a new career. It is possible for people to invest in real estate as their main source of income. However, it is not a get rich quick scheme.

The most successful investors have clear goals and follow a proven formula. They buy homes in particular areas that exhibit desirable qualities. They only buy when the price is discounted heavily and they have favorable financing for the transaction. They also understand the rental rates for the area in comparison to the financing costs.

Buying a rental home can be lucrative and lead to good fortune. However, it must be approached with diligence and hard work, not pie-in-the-sky dreams.

Investment/Rental Properties (5 Part Series)

• Preparing to Purchase that First Rental Home (Part 1 of 5)
• Adding the Title of Landlord Behind your Name (Part 2 0f 5)
• Rental Property is Still a Safe Investment (Part 3 of 5)
• How to Pick Profitable Rental Properties (Part 4 of 5)
• Success Plan for Investing in Rental Property (Part 5 of 5)

Rising Rents Provide More Reasons to Buy a Home

Rising Rents Provide More Reasons to Buy a Home

The economic climate of the past few years has made the real estate industry a buyer’s market.  With so many homes available due to foreclosure or short sales, a buyer can pick and choose their next house. However, there is another segment of the real estate industry that is in the driver’s seat; the landlord. People searching for a place to rent are finding that the landlords are not quite so willing to offer incentives as they once were.

High Demand for Places to Rent

Real estate analysts have stated that the demand for renting has greatly increased in the past few years.  More people renting means the landlords can raise the rental rates.  It also means the landlords are in control of the transaction.  People that have searched for a suitable place to rent have come to realize that the monthly rental amount is either too high for their budget, or is higher than a comparable mortgage payment.

Conditions are Right for Many People

Fortunately, many of the conditions that have forced rental rates to rise are the same factors influencing low mortgage rates and affordable home prices.  The real estate bust in the past few years has greatly reduced prices in most areas.  And with the mortgage rates at the lowest point in history, many new buyers are finding it easier to justify a home purchase in light of the rise in rental rates.

Future Benefits

While buying a home now makes sense for many people, it will also be a good boon for people in the years to come.  It is inevitable that home prices will begin to go up in the next few years.  People that buy now while prices and interest rates are low will reap the financial gain of an appreciation in home values.  They can later choose to use the equity to move up in a home, purchase a different home or even invest in rental properties.

Improve Financial Situation through Fixed Costs

Buying a home now with a fixed rate mortgage can also help people improve their financial planning.  As we have seen in the past, rent amounts normally increase year to year.  Sometimes the amounts are minimal and other years the change is substantial.  People who choose to purchase a home using either a 15 year fixed or a 30 year fixed rate mortgage will be able to plan financially for the future with a fixed cost for housing.

Emotional Stability

Beyond the financial gains seen from purchasing a home, most people see an emotional benefit from being a homeowner.  The knowledge that they have a true place in the world to put down roots can be quite satisfying for many people.  They realize they now have a place to call home and it helps improve their general outlook.

If you are part of the rental crowd considering a home purchase now could be one of the best times in history to take the plunge and become a new homeowner. At Rock Realty, we are now offering a 1% home buyer credit. This could mean $1,000 back to you on a $100,000 home purchase.

Original Post - Rising Rents - Home Purchase