Is your goal to be a home owner or a real estate investor?
Home owners and investors differ in a number of ways when it comes to owning real estate. That’s a lot of real estate owned by investors, which points to the potential profit in owning rental properties. But if you want to be part of this elite group, there are some things to consider. Here we look at some of the key differences between homeowners and real estate investors.
Homeowners get attached, settle in and generally plan to stay for a while. Property investors, on the other hand, can jump in and out of the real estate market much more easily than a homeowner can. Because landlords don’t live in their rental properties, they have a lot more flexibility in terms of buying and selling.
Real estate investors are always looking for the right property to rent out. If they feel a property they own doesn’t meet their needs or they’re interested in climbing the property ladder, they’ll simply sell what they have and buy something more suitable. Being flexible is an advantage to investing that homeowners don’t usually have.
Evaluating real estate for yourself means considering a whole slew of factors like these:
- Your finances: How much can you afford per month? How reliable is your income? Make sure to consider the repair, upkeep, and maintenance costs of a property, too.
- Location: Do you need a home close to work? In a community with good schools? In a place with strong job prospects?
- Long-term value: Will the home deliver a long-term return on investment (ROI)? Will it be marketable upon resale? Will it be the nest egg you’re looking for?
- Family size: How much space do you need? Will you need room to grow into?
- Preferences and style: Which style of home do you like? Do you prefer old or new construction? How much maintenance are you willing to do?
Although purchasing a home requires a look into your finances, money isn’t the only thing driving your decision. As a place you'll live for years (or even decades) to come, there’s more than just numbers and logic at play here. Your personal tastes, feelings, and emotions play a role, too.
With an investment property, you primarily want to consider these factors:
- The property’s condition: How much work does it need? What repairs and upgrades are necessary to make it marketable? What will those cost you?
- The neighborhood: Is the neighborhood in demand? Have home values increased or decreased in recent years? What local amenities are around?
- The potential: What do local comparable sales show that nearby homes are selling for? Is there room for profit, given the home’s list price? How does the home compare feature-wise to other properties in the area?
- The market: Is there a strong rental market in the area? Is it a seller’s market? What are the average vacancy rates? What are average rents like?
- Property taxes: What are property taxes like? Be sure to factor in any homestead exemptions that have been applied in recent years if the house is your primary home.
You’ll also need to look carefully at the list price. Remember, investment property loans typically require much larger down payments (25%–30%, in most cases). Make sure you have the cash to handle this expense while still leaving money for closing costs, property repairs, and general maintenance. You may also need significant cash reserves as well.
Here it is where a real estate joint venture comes in to help home owners become real estate investors. With the equity from your own house you can cover the down-payment for an investment property, and to lower the risk of such investment you can enter into a partnership with few other like-minded people and become an investor.