BY: JAY BRIJPAUL
Investing in real estate is one of the best ways to become wealthy. It is a slow but guaranteed path. Real estate investment acts as a hedge against inflation. There are many tax advantages when buying real estate as an investment, such as writing off the interest you paid on the mortgage and deducting the cost of renovating the rental property. The best place to start is to educate yourself. Avoid using investment clubs and “experts” who promise to make you a millionaire overnight.
With regards to real estate, you need a good realtor, inspector, lawyer, mortgage broker, accountant and a few trades people. It is important to find professionals who have investment properties because they will guide you along the correct path. Once you find the right fit, work with them. If they find you are loyal, they will go out of their way to help you. The first step is to arrange financing.
Your wealth is like a cup of water. If you pour half a cup into another, your wealth will not diminish. You can take some equity from your current home to buy your first investment property. A secure line of credit against your home is like a loan. It is also called a home equity line of credit (HELOC). For investment purposes, it is wise to get the maximum. The interest payment on the secure line becomes a tax write off since you are borrowing for investment.
As an investor, you should not be in a rush. First, choose the location, the size and last, upgrades. Homes that need repairs are usually good investments because once you spruce it up, your value goes up. The best investments are homes on large lots in the mature section of town because the growth potential is greater. As the city expands, developers will buy these homes, tear them down and build larger homes. Once this happens, your home value will climb drastically.
Invest in smaller, more affordable homes as they are easier to rent, cheaper to maintain and easier to sell in the future. Avoid buying homes close to apartment buildings since you will diminish your chance to attract good long-term tenants and your property value can plummet overnight if there is a major incident with drugs and other crime in the area.
Always buy what is very easy to sell. Homes that are damaged, poor locations, grow- ops, etc., are some examples of what lenders may not be willing to finance. With grow- ops, for example, even if the house undergoes remedial treatment it still has a stigma attached. I have come across many instances where the seller must disclose to the buyer that the home was a previous grow-op. The buyer backs out or tries to negotiate a very low price. Avoid buying homes with stigmas such as murder and suicide. Always ask the seller to provide a seller property information statement that will disclose important facts about the home.
Avoid using a different insurance company for your investment. The insurance company may think that this is the home you live in and can deny your claim. With the same insurance company covering both homes, there is a clear distinction.
A good rental property should be one that is very easy to clean and upkeep in the event the tenant moves. Ceramic tiles and laminate floor are wonderful. The next step is to choose the right tenant. Consider using a realtor with the experience to guide you. Single-family homes that are well kept attract quality tenants. Good tenants will take care of the home and are there for the long haul.
Over the years, your investment will grow, your mortgage will reduce, and your rent will increase. One property buys another in seven years. At retirement, four rental properties earning $2500 every month will give you a retirement income of $120,000 every year!
