If you’re settled in your home and secure in your job, it’s likely you’ve considered purchasing an investment property. But how do you know if it’s the right time to take this step or if it is the best way to invest your money?
There are many benefits to owning a rental property: continual cash flow, flexible fee payments, and tax deduction opportunities are just a few.
Here are 4 questions to ask yourself before buying an investment property:
1. Will property investment fit into your investment portfolio?
First and foremost, it is important to consider whether a home purchase makes sense alongside your other investments. Take careful stock of your finances, consider loan requirements for the purchase, and if needed, sit down with a financial advisor to determine whether a second home purchase is a good idea.
2. Does property investment suit my lifestyle?
While hiring a property manager is useful and recommended, owning an investment property will still require your time and money. Real estate investment is a long-term project. There is no getting rich quick here!
3. What are the risks?
As with any investment, there are potential financial risks when purchasing a rental property. None of us will forget the 2009 economic downturn anytime soon, and many home owners lost both primary homes and investment properties during the recession. Other, likely less costly risks include vacancies and expensive repairs. Know the vacancy rates and desirability for the neighborhoods your are considering prior to making a purchase.
4. How will you finance the property?
Will you use a HELOC, a conventional mortgage, private funding, or another means of financing your investment property? Research your options and determine what works best for you before you take further steps with your purchase.
Do you own an investment property? What advice to you have for those who are considering taking this step with their personal finances?