Purchasing a property outside of your primary residence for the sake of income is called an investment property. This income usually comes in the form of rent, whether it’s a residential or commercial property.
Many financially-savvy individuals dream of owning multiple rental properties in [state] in order to create more passive income and grow their real estate portfolio. While this all sounds good initially, unsurprisingly, owning one or several investment properties can be difficult to do.
Basics of Purchasing Multiple Properties
First of all, the amount of capital it takes to own multiple homes or properties is exceedingly high. Especially in areas where real estate prices are skyrocketing. Commercial buildings are also almost always far more expensive than residential properties and come with their own set of rules and regulations. But, also businesses tend to pay higher rents and stay longer than residential tenants.
Investing in an investment property requires several thousands of dollars (likely hundreds of thousands) -- it isn’t a small “buy-in” which creates far more risk than other ways of investing. Why is investing in real estate so popular then? Because when one has the ability and knowledge base to do so and financial wherewithal -- real estate is a no brainer.
Owning a property that you don’t live in makes you a landlord and that comes with a lot of responsibility. Repairs, tenants, insurances, landscaping, to furnish or not to furnish? If you own the property and whether you live there or not, the final say and responsibility is on you. That’s not to say that owners can’t keep the repairs and maintenance at arms length, but they must have the financial ability. Several investors own homes in different states and have teams of professionals to handle anything that might go wrong and/or renting out their properties; but this of course costs them and cuts into the profits their investments are making them.
Noteworthy Information
While it’s rare and often more expensive at the beginning, there are turnkey properties that can be bought as investments. Turnkey simply means that properties are ready to go. There’s no repairs or remodeling to do and they immediately begin making their owners money. Of course, buying a new or otherwise mint condition property is more expensive than a fixer-upper. But, a fixer upper requires fixing and again we’re back to time and money. Sometimes repairs take far more than originally anticipated to solve. It’s common to see investors that have had multiple successes with their rentals or flipping properties begin to invest in turnkey properties.
It’s also important to note that the more properties you own the trickier it can be to get a loan and secure more properties. Of course, big businesses and individuals may be an exception. But, the more you own and the more debt you’re in, makes a riskier investment for banks.
As with anything that has to do with finances -- checks and balances are key. Owners/investors decide what is worth their time and money and how best to spend their most valuable assets. Working closely with real estate professionals is a great way to stay on the right track. This ensures smart investments to improve your financial future.
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