“Don’t wait to own property, own property and wait”

Rob Moore

Investing in real estate has always been believed to be a profitable business. An income property can be the best investment you can make. You don’t have to be Scott McGillivray to know the formula to a sound investment: buy when the price is low, sell when the price goes high and rent in between for positive cash inflows. Anyone can tell you that income property is turning real estate into real income by buying or developing a residential or commercial property with an intention to generate income through renting, leasing or appreciation. In real life, things are not that simple and they don’t always work out in your favor.  Making the right decision, at the right time, at right price and for the right place is all it takes to maximize the return on your investment. And I cannot be proved wrong to suggest that this is not possible without the help of a right real estate professional.  

How does income property work?

Income generating properties can take various forms, but the most common practice includes purchasing undeveloped land or a residential property. Professional real estate agents can help you purchase a residential property, preferably a house, then rent it out to help you pay back the mortgage or other monthly expenses. Finally, that house can be sold when the neighborhood has developed and price has gone up over time. The value of the residential property can be enhanced through house renovation projects. Similarly, a certified real estate agent can spot opportunities for you to invest in undeveloped pieces of land, which can be sold later when the value has appreciated. Income properties require a long term strategy. You may be required to purchase and hold the property for as long as 10 years to maximize your capital gain and return on investment. This strategy may vary for different types of investments. Sometimes, you may need to purchase and sell shortly or even immediately, or you may have to purchase-hold-sale, in other cases you may be required to purchase-renovate-sale, purchasing a property-renovating it-holding it for a while and then selling it is yet another strategy.

How to Finance your Income Property?

There are many options when it comes to financing your investment property.

Cash

The best liability free way to purchase property is with cash, but only if you can afford it. Paying cash eliminates the expense of mortgage payments. Having substantial cash to make a significant down payment is a smart choice. After avoiding the liability to pay interest on the mortgage loan and just spending it on maintenance, all the profit goes into your pocket.

Mortgage

Having the cash to buy the property outright is not obligatory and not always possible. That’s where a mortgage comes into play. A mortgage can turn out to be profitable when property value increases, but remember you need a mortgage plan with low expenses, so that it won’t significantly diminish your monthly profits. The problem with mortgaging is that the property’s value is not guaranteed to climb. Besides, mortgaging allows more and more people to afford properties.

Equity

If you already have a home of your own, its equity can be used to borrow for purchasing income property. Equity is the amount of money in your home that you actually own. It can be calculated by working out the difference between current value of your property and what is left to be paid for the mortgage. Borrowing money on the basis of equity will increase tax deductions.

Investment Property Loan

Another way to finance your investment property is borrowing money from the bank. You will need to make a minimum deposit of 10% and a high credit score. Afterwards, you will have to pay back monthly installments. In short-term, when you purchase the income property the cost associated with borrowing money might be cheaper, but the interest rate on an investment property can be draining in the long-term.

Creating Income Property Portfolio        

Once you have gotten your feet wet, gained enough confidence and balance from your first investment in income property, you can make a move towards the next. The wise way for creating a portfolio is to build up equity on your first property and then you can consider purchasing a second investment property. Using the equity in your existing income property allows you to borrow more money against your next investment property, therefore increasing tax deductions.

How an Accredited Residential Property Manager (ARPM) can help?

Investing in income property for the first time and then creating a portfolio is both a long term and daunting process. Everyone is tempted to gain wealth by being an investor, but not everyone has the necessary skills and experience. Managing income property requires the best of expertise at spotting the right opportunity, making the right decision and making the right move at the right time. This required combination of expertise, market knowledge and experience calls for the need of an expert, a professional real estate agent or an accredited residential property manager (ARPM). A certified specialist can truly help help you succeed with investment property by identifying the right property for you, providing the calculations, finding the right tenants to lease the property and managing the cash flows.

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