Property Investing: Fairly Low Risk

Real estate investors are typically people who want a way to develop financial security and a comfortable retirement income. To do this they’ve chosen a method of investing that is fairly low risk and requires a minimal investment up-front.

Real estate investors tend to focus on the development of equity, which enables them to leverage one property to purchase a second and so on. While you may not be interested in becoming a real estate mogul, even a single property can bring you opportunities that you never before thought possible. Here are some things to consider if you are thinking about investing in real estate:

- Understand “negative cash flow”. Before you make the decision to invest in real estate, you must first understand the idea of negative cash flow. Negative cash flow is very common with investors who have little or no money to invest in their first property. What the term means is that for some length of time, you will be putting more money out than you are bringing in. While the idea of negative cash flow might seem daunting, consider this. If you are purchasing an investment property with no money down, the cash that you will need to pay out of pocket is the equivalent of the down payment that you would have normally made to the lender. It is always best to enter any investment with true knowledge of the risks and benefits. Negative cash flow is something that you must learn about prior to making the decision to purchase an investment property.

- Get it in writing. If you decide to purchase a property by way of assuming a loan, you will basically be writing a check to the seller for the difference between the selling price and the amount remaining on the mortgage. In this case, you must request a statement showing the current loan balance before signing an agreement. Otherwise, you may find out quickly what a difference a few thousand dollars can make – particularly when those dollars are coming out of your pocket.

- Find out what you need to know to be a landlord. If becoming a landlord is your goal, then you will want to get familiar with what is required when it comes to managing tenants. There are many different situations that you will want to prepare for, contracts that you will need to prepare and many other aspects of property management to consider.

- Know what tenants have been promised. When purchasing a rental property with existing tenants, always ask the seller to certify in writing that he/she has not made any agreements with the existing tenants that might have an impact on your responsibilities. For example, if the seller promised a free month’s rent with a lease renewal – you need to know! If you are not aware of these agreements, you are not required to honor them. However, if you intend to keep the same tenants it is important that you honor any agreements and factor your costs into the purchase agreement.

- Understand the tax implications for the type of financing you choose. Be aware that if you use a home equity loan to finance the purchase of an investment property, you will not have the same tax benefits as you would if you used a traditional mortgage program. The cost-savings may make using the equity loan a better choice, but be sure to investigate carefully.

Hopefully, the information presented here has given you new insight into the world of real estate investing. Our intention is that you can now take this information and put it into play in your own investment plan. Careful planning is the first step to financial freedom, and real estate is an excellent vehicle for carrying out the plan.