The process of buying a house can be difficult and confusing to navigate, but real estate can be a wealth-building tool. If you are thinking of buying a place as a way to build your net worth, you might want toconsider an investment property
instead of your dream home.
Most people wait to get involved in the housing market and often wait to buy an investment property until after they have bought a house to live in themselves. But you don't have to do it in that order. Instead, try calculatinghow much house you can afford
and start looking for a home with high appreciation potential. This is very different from looking for a home where you can imagine yourself growing old.
1. It's a Tangible Asset
Unlike other investments, you can see and feel what you own when you invest in real estate. Real estate investment is often easier to understand than stock and bonds for most people and can help diversify your investment portfolio significantly, as it has low volatility. Keep in mind that being a tangible asset, it can take on damage and have problems and extra costs that stocks and bonds do not.
2. You Can Get a Good Rental Income Return
One of the most attractive aspects of real estate investments is the significant proportion of total return. Since rent will be paid to you and rent increases are currently outpacing purchase price growth in most parts of the country, you could make more in rent on your investment property than you have to pay inmortgage payments
on the home. You can make money on your rental property immediately if you are able to charge more in rent than your mortgage payments and other expenses, including property tax, insurance and maintenance.
Another way to make money for the long term is to pay off the home and continue to rent it out, or sell it when the market is hot.
3. The Market Is on the Upswing
Speaking of hot markets, buying an investment property allows you to look in areas you wouldn't necessarily want to live in but that are desirable to potential renters. Interest rates are near all-time lows, making it an ideal time to buy a rental property if you can pay in cash orqualify for a good mortgage rate
. (Your credit score has a huge impact on this -- you can check two of yourcredit scores for free
on Credit.comto see where you stand.) If you are looking to invest in an area where home prices are on the rise, consider purchasing short sales orforeclosed homes
When you are on the hunt for an investment property, whether it is your first or fifth, it's important to focus on finding one that will make money for you -- even if you wouldn't want to live there.