Creating additional income through investment properties has been around for centuries. People who seize the opportunity to increase their personal holdings do so for various reason. Creating an investment strategy is key. Creating an exit strategy is equally important as well.
Let us look at Six Key Factors when creating an investment strategy.
1. Location, Location, Location. It is a tired old phrase but is ten thousand percent true. Purchasing the right house in the wrong location can lead to disaster. In this case purchasing with your emotions has to be secondary to purchasing with a clear logic. Location is #1 importance; the property is 2nd.
2. Down payment difference. Unlike purchasing a traditional residence, investment properties require a significant uptick in down payment. Depending upon the property one may have to increase the down payment to 15-25%.
3. The 1% Rule. As an investor you want to receive a rate of return on your investment. The 1% Rule is your minimum standard. Example: Your purchase a property for $250,000 you need no less than $2,500 in rental income per month to make the investment pay for itself.
4. Fixed and Variable Expenses. There is nothing surprising here as an investor you will have expenses associated with the care and up keep of your investment. These monthly and yearly expenses must be calculated into the overall plan for the property.
5. Property Management. Unless you plan to live on or near the investment property you may have to use the services of a Property Management firm. Cost for these services may vary from location to location and may be beneficial as your portfolio increases.
6. Exit Strategy. What is your strategy for disposition of the property? Will you maintain it for 5 -10 years or for your lifetime? Create an escape plan at the outset and change as your financial plan evolves.
Bottom Line: Many investors have done well with investment properties and investment properties have been an excellent source of income for retirement.
No comments:
Post a Comment