The homebuying landscape can be difficult and confusing to navigate, but real estate can be wealth-building tool. If you are thinking of buying a place as a way to build your net worth, you might want to consider 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 calculating how much house you can afford and start looking for a home with high appreciation potential. This is very different from looking for a home that you see yourself growing old in.
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 in mortgage 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.
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. As with any investment, you need to make sure the numbers pan out and you need to be confident rent payments will continue to cover your mortgage costs, or else you could lose money on the property.
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 or qualify for a good mortgage rate. (Your credit score has a huge impact on this — you can check two of your credit scores for free on Credit.com to see where you stand.) If you are looking to invest in an area where home prices are on the rise, consider purchasing short sales or foreclosed 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 you money — even if you wouldn’t want to live in the home.
More on Mortgages & Homebuying:
- Why You Should Check Your Credit Before Buying a Home
- How to Find & Choose a Mortgage Lender
- How to Search for Your Next Home