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Is a rental property a good investment? all you need to know

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Real estate broker agent being analysis and making the decision
Georgeta Olaru / 500px

Stocks fallandInflation rise, buying a rental property is a good way to park your money You may wonder if it's a place. 

Sounds easy. Buy a house, borrow at a price that covers your mortgage, and pocket a stable cash of-all while property values ​​are rising. In addition, rents forhave skyrocketed across the United States

butdue to rising mortgage rates, things to consider There are manyin the local market to find a reliable tenant. Surprising costs can also be incurred. Here are some answers to common questions about buying a rental property:

Is it worth having a rental property?

Under the right circumstances, over time, depending on your financial position and goals, you may: 

You can receive hundreds of dollars a month for all expenses including taxes (incomeand localproperty) If) is paid and donated to an emergency reserve, the rental property can provide reliable income over the long term. "Assuming that real estate is profitable, when that cash flow comes in, you can buy more assets of the same type, buy real estate, or buy other types of assets when [real estate] is at a disadvantage. You have the opportunity to do so, says Cynthia Meyer, a Certified Financial Planner (CFP) for Real Life Planning in Gladstone, New Jersey, working with real estate investors. 

Rental properties are a good investment so far.

Rental properties can be a long-term investment if financial institutions are in place, especially as interest rates on rise, Meyer says. .. 

Rental properties should generate monthly income, even for just a few dollars at first. Do math to make sure the property you are considering is suitable for you. Talk to your financial adviser or local real estate expert.

"I often ask people," Is this transaction economically meaningful? " For example, don't show yourself losing $ 300 a month. Probably not, so expect me to say it's a good idea, "says Meyer. “At least there should be no net freight costs to real estate.”Running a rental property can be a daunting task.

There are many things to do when setting up a rental property, such as insurance, homeowner association fees, utilities, advertising, cleaning, over time repairs, and increased mortgage payments. Spentand taxes are some important factors, to name just a few. 

Some rental property owners hire a management company to manage the property. Fees are typically 8% to 12% of themonthly rent

As an investment, rental properties are slower than building a home in the midst of a booming real estate market, but can be a reliable source of income. House prices have skyrocketed in the last two years, but their enthusiastic pace has slowed. 

How much profit should you make with a rental property?

If you've finished your calculations and plan to own real estate for years, even a small profit "per door" or per unit can be a valuable source of income over time. There is sex, says Meyer. 

For example, you can add up a net profit of $ 100 per month (after everything is paid). If your rent usually rises by 3% to 5% a year, your profits should rise as well.

"Twenty years later, it's a pretty strong rental income," says Meyer. "And that doesn't include gratitude."

What kind of loan do you get for investment property? 

Rental property owners can apply for amortgage, such as homeowner, but with a very important difference I have. For one thing, the down payment is usually much larger.

Experts say most lenders demand about 25% down on mortgages for rental properties. This is in contrast to the6% to 7%paid by homeowners in recent years.

Lenders consider rental property mortgages to be more risky than regular mortgages, as investors' own mortgages are likely to be prioritized during difficult times.

What is the best way to finance investment real estate?

Of course, if you can buy real estate with all your cash and you still have the funds for the buffer, that's ideal. Keep in mind that real estate is considered a "liquid" asset. It cannot be immediately converted into cash in your pocket. Most real estate investors need or want a mortgage. 

Before applying, complete your budget, investigate how to attracttenants, and make sure you have a clear understanding of property management costs.

Credit score required for investment real estate.

Lenders tend to give the highest rates to borrowers with a credit score of 760 or higher 

" Can You Get an Investment Real Estate Loan If Your Score Is 680 or 700. Perhaps But You Will Just Pay More Interest, "Meyer says.

What percentage can I rent for a rental property? 

It depends on the situation. In 2022, as interest rates rise, the strategy of buying a devastated property, repairing it, raising rent, and renting that property to buy another property is becoming more difficult, Meyer said. increase. Lenders want a guarantee that their mortgage will be paid in difficult times and will scrutinize your property before granting a second loan. 

Rental property buyers "must be more careful about their numbers and their interest rate assumptions," Meyer said. "They can't refinance or take out equity, and if they double the rate a year and a half ago, their assets will still have positive cash flow."

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