You only have to look at the profile of a large number of wealthy people to spot the obvious connection between these people other than the fact that they have been successful in making money.
Investing in property is one of the main cornerstones of wealth creation and if you talk to a Montrose realtor or anyone who has a sound understanding of real estate, they will tell you that if you do it right, investment property can earn you some excellent returns on your money.
Big money investment
The first thing to say that simply investing in real estate is never going to guarantee you a long-term profit.
The historical trends for property prices in general are very encouraging for anyone considering investing in property but when you are putting in a large sum of money in one go, you definitely want to know that the odds are as much in your favor for making a profit as they can be.
Buying and selling stock by comparison, can be done at a relatively modest level so that any investment mistakes are not too damaging and you can spread your risk around a number of different stocks if you want to.
Buying real estate means betting on one stock as it were, which is fine as long as you do your research and understand the fundamentals of investment property.
Buying a property that you are not going to live in is an entirely different scenario and it means that you have to adopt the mindset of a landlord rather than viewing the property as your home.
If you are considering building a portfolio of different properties in order to generate a regular rental income as well as enjoying capital growth, and investment property is obviously what you want, but you do have to consider how you are going to deal with the repairs and issues that could easily erode some of your profits.
Some property owners are good at DIY and are competent enough to tackle a number of minor repairs themselves to save costs, but if you are not going to be doing this you will need to ensure that the property you are looking at can generate a sufficient level of rent to cover a contingency amount that you can set aside for when repairs are needed.
Financing the property purchase
There can be a difference of opinion when it comes to how you should finance your property investment.
The ideal scenario would be to pay cash for the property and simply enjoy the rental income you generate without having to find any mortgage payments.
When you are first starting out in building an investment property portfolio there is a good chance that you may need to finance part of the purchase price with a mortgage. There are plenty of examples of savvy investors who have started out being highly leveraged but have been able to grow their portfolio more quickly with an aggressive financing strategy.
This is risky and it highlights the importance of doing all of your sums to know that you have enough money available to pay for repairs and general maintenance on your properties when it is needed and also that you have enough cash reserves to pay mortgage payments when there are rental voids to contend with.
Leave a margin
A good guide to making sure that the numbers check out sufficiently on a property that you are considering investing in, is to ensure that the price you are paying and the rent you can generate, allows you a margin.
The ideal margin for a private property investor to work to is about 10%.
Work out how much your finance payments will be and calculate your annual maintenance and insurance costs. If you estimate your maintenance costs at about 1% of the property value on an annual basis, this is normally a fairly reliable guide.
Make sure you detail all of your expenses including property taxes, garden and building maintenance and even things like pest control, so that you know the price you are paying for the property gives you the opportunity to leave a sufficient margin.
Another sound piece of advice if you are just starting out in property investing is to resist the temptation of buying a property on the cheap with a view to fixing it up. The odds are quite high that you may end up paying too much to renovate.
A better approach would often to try and buy a property below the market value that needs only minor repairs to bring it back up to standard.