Have you been researching investment options for 2021? With attractive current mortgage interest rates, now may be the perfect time to acquire a real estate investment property. Here are four things to expect from a real estate investment that will help you determine if real estate investing is for you.
Simply put, appreciation in real estate is an increase in the value of an asset over time. When most people think of real estate investing, they think about collecting rent as their primary money-making avenue. Although collecting rent is great, the money a real estate investment can bring through appreciation is often much bigger than rent.
When you invest in real estate, you gain appreciation on one hundred percent of the house, not just the 3.5 percent you paid in the form of a down payment. For example, if a $311,000 real estate investment appreciates 7 percent, the total appreciation you gain is $21,770. On the other hand, the same 7 percent appreciation on your down payment amount of $10,885 only results in a $761.95 gain. The appreciation on $311,000 far outweighs the initial investment in the home.
Rental income can be the difference between a home being a good investment or a bad one. If your monthly mortgage payment is lower than your home’s median rent, you have cash flow. If your monthly mortgage is higher than what the rent is, you will pay the difference. Fortunately, the amount you can charge in rent tends to rise over time and lead to greater cash flow, which is another reason real estate investing may be a good investment option for you.
Real estate investing is all about the numbers. Use our free mortgage calculator to better understand if a particular property will meet your needs.
Real estate investing can take a lot of time and a lot of effort. Managing your real estate investment isn’t just sitting back and cashing rent checks (when and if they do actually arrive). Some investment properties take more work than others, depending on the type of real estate investment you have. For example, a single-family home may produce monthly rent without much management needed. However, a multi-family home, such as a duplex, may require more service calls. Providing you find a management team that you trust and can afford, they too have their cost, with most property managers charging 6-12 percent of the rent as their fee.
Then, what happens if a tenant no longer wants to pay rent? It’s your real estate investment and the monthly mortgage payments don’t stop even if the tenants stop paying. While having a real estate investment can be a big moneymaker, it can also cause a great deal of stress and money issues if something goes wrong.
Real estate investing is a numbers game. There’s no gray area. There’s no maybe or kinda. It is or it isn’t: you have the money, or you don’t.
While you can invest in real estate even if you don’t have a huge savings account––if fact, some would say that’s even more reason to start investing––whether or not you should is contingent upon your risk tolerance. Real estate investing is one of the things in life where overextending yourself or your budget can really cost.
How to Start a Real Estate Investment
The recommended place to start when determining if real estate investing is for you is to consult a professional mortgage company to help you better understand what you can comfortably afford. Partnering with the right direct mortgage lender can help you jump start your real estate career. Check out our mortgage rates chart to lock in your rate today.