Investing in Real Estate: Financing Creativity
Once you own one home, what might pop into your head is the idea of owning a second home as a money investment. Though the real estate and housing market is low, if you have some fortitude and some patience, now might be an excellent time to invest in real estate.
After you invest in real estate, a big part about profiting from it is making sure that the financing is in place. Real estate is not like operating a retail store where you buy something wholesale for $10 and sell it for $20.
First, you must identify your goals and determine if you want to rent the house and, ultimately, once paid off, have a nice annuity or if you want to flip the property for a more short-term profit.
If you are looking to flip and you’re confident that you can find a buyer, consider an adjustable mortgage with a very low temporary interest rate. These adjustable rate mortgages have been the source of a lot of problems, but if you know you can sell for a profit before the mortgage resets (2 to 5 years), you can maximize your cash flow by paying only the interest and then making the principal the buyer’s responsibility.
For longer-term real estate investments, fixed mortgages are better because they allow you to plan your cash flow accordingly and get by when things are tougher.
Many people who invest in real estate may be in a hurry to pay off, but remember; you are using rental income to help subsidize the mortgage payment. If you truly have a long-term horizon, you can rest easier knowing that someone else is paying more of the interest and principal each month than you. For rental properties, or investment real estate, make sure you are also leveraging all of the tax benefits of depreciation and valid expenses.
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