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Real Estate Investments – Rental Homes
Real estate investments for retirement or as “passive income” has long been touted
as the way to create wealth and increase net worth. While it’s true that real estate
certainly can do all those things. It’s important to look at the realities and requirements
of this type of investment.
Financial Requirements of Real Estate
One of the main points to understand with all real estate is the amount of “leverage”
that it offers you. Leverage is when you purchase an asset by putting down a
percentage of the purchase price and financing the rest. Thus, leveraging a relatively
small investment for potentially much bigger returns.
To purchase any real estate, having the funds to purchase and maintain the property
is critical. In addition, being considered “credit worthy” is important in determining the
types of interest’s rates that a lender will offer.
Investment property financing comes with higher interest rates than purchasing a
primary residence. The terms and conditions are also far more stringent. As lenders
find these to be a riskier investment than home ownership.
Time Requirements of Real Estate Investments
Many people often talk about how they “just sit back and collect the rent check!” While
that may be true on occasion, real estate requires a time commitment.
Finding tenants and showing the property takes time at the outset of the investment.
Making sure that you find the right tenant is critical. It cuts down the amount of time
and effort your investment requires each year. The wrong tenants can cause
damages to the property or not make rent payments. Which will greatly increase your
time commitment to either take them to court or fix the issues at the property.
Property maintenance is a major time commitment that many forget to factor into their
analysis. Murphy’s Law of what can go wrong, will – happens frequently in real estate.
Knowing how to fix and make repairs certainly comes in handy. And if that’s not in
your skill set, having the right people that can do that is certainly a major plus when
something happens. That just leaves the overseeing and managing the repairs to the
Legal Requirements of Real Estate
Any time there is a landlord – tenant relationship, there are certain do’s and don’ts
that the property owner needs to be aware of. Missing some of these can open legal
issues that are best avoided. Luckily there are several sources online that cover the
basics and speaking with an attorney that specializes in this area as well is critical.
In addition, an attorney can insure that you have the best lease for all your tenants
that protects you. The lease is the binding agreement between all parties and having
a lease that protects the landlord will give the owner an additional level of security.
Real estate investments offer many opportunities for investors. Whether it’s as an
additional part of a portfolio or starting a new portfolio. Knowing what to anticipate and
preparing for it will make the entire process easier and far more successful.