Investment property is a real estate investment, it is a land or a building or part of a building. It is purchased with the intention of earning a return on the investment either through rental income, the future resale of the property, or both; It is not owner-occupied; not used in production or supply of goods and services, or for administration; and not held for sale in the ordinary course of business. An investment property can be in the form of residential such as house, unit, and townhouse or non-residential such as land, commercial or an industrial property. It is one you plan to hold for the purpose of generating income or long-term appreciation.
The benefit of an investment property is: You can earn rental income from having tenants rent out your investment property. Benefit from capital growth if you buy at a good price and the property increases in value. The interest on an investment home loan is tax deductible. Property investment can be less volatile than shares. Unlike shares, your property is a physical investment that you can see and touch.
Thinking about purchasing your first investment property?
It is a very big step for any investor to purchase his first investment property, below are a few from many factors you need to consider and know:
1. Finding the right property and the right location
2. Buying in Cash or to through financing
3. Securing a Down payment
4. Knowing the interest rates on mortgage.
5. Calculate profit margins
6. Calculate operating expenses
7. Determining returns
8. Calculate taxes
9. Investing in Landlord insurances if it is for rental.
10. Knowing your legal obligations, and many others.
The above listed information may be overwhelming to do and know, but the process can be simplified and perfectly executed with the help of a reliable real estate team. Choosing the right team can impact directly on you achieving the best possible outcome. The Pacific South Coast team is a group of outstanding individuals, with a combination of property related skills and expertise. We take time to get a real grasp of your desired goals and ensure the experience of buying your first investment property is truly rewarding, easy and enjoyable in every way.
Real estate is a great investment for many reasons. Property investors make money through rental income, appreciation, and profits generated by business activities that depend on the property. The benefits are numerous. With well-chosen assets, investors can enjoy predictable cash flow, excellent returns, tax advantages, and diversification—and it's possible to leverage real estate to build wealth. But many people avoid real estate investments because they think they are scary or need a lot of money to invest. Neither is accurate, and to reassure you, here are some of the great reasons why real estate is a good investment.
Investment Leverage
There aren’t too many other investments that allow you to invest in assets worth much more than you have to invest. For example, if you have $10,000 to invest in the stock market, you can usually buy just $10,000 worth of stock. The exception is if you invest on margin (borrow), but you must be an accredited investor with a high net worth to make that happen.
With real estate, you can put down a fraction of the home’s cost and invest in it. For example, let’s say you found a home for $100,000; if you put down $10,000, chances are you could find a loan to finance the rest as long as you have good credit and stable income.
With that, it means you invest just 10% of the asset’s value and own it. Then, over the years, as you pay the mortgage down, you’ll hold more of the investment, increasing your rate of return not only by paying the mortgage down but also with the natural appreciation of real estate experiences.
Value Appreciation
There will always be value in your land, and value in your home. Other investments can leave you with little to no tangible asset value such as a stock which can dip to zero, or a new car which decreases in value over time
Also, you can force the real estate to appreciate. We know that real estate appreciates naturally. On average, real estate appreciates 3% – 5% a year without you doing anything except maintaining the home. But, you can increase the rate of appreciation by making renovations or repairs.
The renovations don’t have to be major either. Of course, adding a room or finishing the basement will add more value than simple cosmetic renovations, but even minor kitchen and bathroom renovations can drastically affect a home’s worth.
Tax Benefit
Like any business owner, real estate investors can take advantage of many tax write-offs. But, while it’s an investment, when you own a home and rent it out, you run a business – you are the landlord.
As the business owner, you can often write off the following expenses:
Cash Flow
If you buy and hold real estate, you can earn monthly cash flow renting it out, and this increases the profits from owning real estate since you aren’t relying only on the appreciation but the monthly rental income.
If you buy and hold real estate, you can earn monthly cash flow renting it out, and this increases the profits from owning real estate since you aren’t relying only on the appreciation but the monthly rental income.
Investing in property is a proven path to long-term wealth, however you should consider it a medium to longer term type of investment, so you'll want to make sure that you can afford to maintain your mortgage repayments over the long term. Here are the financial factors you need to have in good shape before buying a house
Financial Requirements
But did you know it’s possible to buy a home without a down payment?
If you want to buy a house with no money, there are two big expenses you’ll need covered: the down payment and closing costs. Both can be avoided if you qualify for a zero-down mortgage and/or a home buyer assistance program.
Five strategies to buy a house with no money include:
When combined, these tactics could put you in a new home with $0 out of pocket.
Or you might get your down payment covered, and then you’d only need to pay closing costs out of pocket — which could reduce your cash requirement by thousands.
Below are some options you have when you want to buy a home without a down payment.
The Zero-Down Mortgage
As the name suggests, a zero-down mortgage is a home loan you can get without a down payment. A down payment is the first payment you make toward the home, and it’s due when you close on your home loan. Lenders usually calculate your down payment as a percentage of the total amount you borrow.
For example, if you buy a home for $200,000 and you have a 20% down payment, you’ll bring $40,000 to the table at closing. Lenders require a down payment because it lowers the risk that you won’t pay your bills. Down payments are a major hurdle for many homebuyers, as it can take years to save up for a lump sum of cash.
You can only get a mortgage with no down payment if you take out a government-backed loans.
Government-backed loans are insured by the federal government. In other words, the government (not your lender) foots the bill if you stop paying back your mortgage.
The government offers insured loans to people who need financial assistance to buy a home. This means that government-backed loans are less risky for the lender, and they can expand their usual loan criteria to people with riskier financial profiles, such as borrowers with no down payment.
There are currently two types of government-sponsored loans that allow you to buy a home without a down payment: USDA Loans and VA Loans. Each loan has a very specific set of criteria you need to meet in order to qualify for a zero-down mortgage.
USDA Loan
A USDA loan is a loan backed by the United States Department of Agriculture. Rocket Mortgage® does not offer USDA loans at this time.The government offers USDA Construction Loan and USDA loans to encourage development in rural and suburban areas. You can get a USDA loan with $0 down. USDA loans also have lower fees than other types of loans.
Both you and your home must meet a few criteria to qualify for a USDA loan. First, your home must be in a rural or suburban area. Check out the USDA's map of eligible areas to find out if your home qualifies. On this map, anywhere outside of an orange zone qualifies as a rural area. In addition, your home cannot be a working farm, it must be a single-family unit and you must live in the home as your primary residence.
You also need to meet a few financial requirements to qualify. The combined gross income in your household cannot be more than 115% of the median income of the county your home is in. Your debt-to-income ratio shouldn’t be higher than 45%, and you must have a FICO® Score of at least 640.
VA Loan
You may qualify for a VA loan if you’re an active-duty service member, member of the National Guard, veteran or the spouse of a deceased veteran. VA loans are backed by the Department of Veterans Affairs and are another option if you want to buy a home with no down payment. VA loans also allow you to pay a one-time VA funding fee that’s 2.3% of your loan value in lieu of mortgage insurance. For each subsequent use of a VA loan, the funding fee with no down payment is 3.6%.
In order to qualify for a VA loan, you must meet any one of the following service requirements:
In addition to service requirements, you should have a credit score of at least 580 to get a VA loan