Buying Investment Real Estate? Four Things to Know

Positive cash flow property is a safer investment

A positive cash flow property makes money in two ways: appreciation and rental income. On average, through the ups and downs, real estate has appreciated at around 5 per cent per year. Rental income that leaves you with a positive cash flow after expenses is important. Properties that do not rent out for enough to cover your costs, also called a “negative gearing” will eventually make money when they are sold for a lump sum but are more difficult to manage. Building real estate wealth is often a long-term plan (unless you’re renovating and flipping). You don’t want to be in a position where you’re forced to sell due to financial hardship. Cashflow really is king.

Passive income can’t be beat

While real estate isn’t quite passive income (defined as making money even when you are not working), it is certainly an excellent way to leverage wealth over time. To be profitable in real estate investing, rental income should exceed total expenses and generate excess cash returns.  This will give you a financial cushion you can count on for operational costs, your major repairs fund and management expenses if you choose to hire that out instead of doing it yourself. There’s no better feeling than making a few extra dollars to pay for a better lifestyle or to put towards more investments.

Raise that rent!

Some real estate investors do not raise the rent on a yearly basis, though they should. That’s because the costs of maintenance, repairs, and the cost of living all increase. If you keep your rental property in good shape, it will be worth the value and your renters will usually be happy living there. Your major expenses such as the mortgage payments, will stay relatively the same, so higher rental income means more cash flow returns earned per month. Build towards financial freedom.

Build wealth over time.

Real estate investing will always be in demand, and it will never go out of style. It’s an excellent asset to own and a good way to build wealth and long-term financial security. You build your equity through time and eventually gain full ownership of the rental property. If you choose, you can use this equity against buying more real estate to build your real estate business and diversify your portfolio. Make sure you consult your financial adviser and lawyer. And take the time to contact Jane Logan to learn how to find the right rental property before you make a purchase.