Buying an investment property can be a hobby, business, or a way to supplement your income. People buy investment properties for numerous reasons. In this post I will discuss a couple of the most common reasons that people tell me as to why they are buying an investment property. In this article I won’t break down all of the rate, term, and financial differences in the lending procedure from a traditional purchase and an investment purchase, but rather some tidbits I have seen over the years.
HGTV Effect – We have all seen Property Brothers, Flipping Vegas, Flip or Flop. I have been told on many occasions that people want to try and flip a home and make some quick cash like they see on TV. This is probably the worst reason in my opinion to buy an investment property. Those shows are often like magic shows in that they show you what they want you to see and they always make it look very easy. In reality they are often very talented and doing this on a massive scale, so when they are telling you that the house is going to cost $50,000 to renovate that’s with their team doing the work at contractor pricing. That’s the reason they can do a whole house for the price that it costs you and I to remodel our kitchen. Also, the margins between the purchase and selling price are so low now that it’s extremely difficult to turn a profit, especially in the Nevada Market. My advice to you if you want to try this is to speak with someone that has had experience in the flipping business and really pick his or her brain because it can be done, but it is difficult.
Earn a Higher Return – Let’s use an example on this one. I have a friend that had $20,000 sitting in the bank earning .05% interest, basically earning you $10 per year in interest. This is very common for people to just leave cash in an account earning little to no interest. Instead, he went to an auction and purchased a condo in a pretty rough development for $20,000 cash. He put about $1500 into it for a total investment of $21,500. He rents it out for about $550 per month and the tenant pays the utilities. So as opposed to earning $10 for the year, he earned $6600 for the year. He has since purchased 3 more in the same development. They have gotten more expensive over the years, but that also means that they are gaining value as well. His goal is to continue to buy them cash or pay off the loans very quickly and ultimately have a large investment portfolio creating an additional income stream for him.
Investment properties can provide excellent income and offer you the opportunity to try your hand in a different area of real estate than you are probably used to. As always, I recommend you consult with your team of professionals to make sure you do your research and are well informed of the process. Good luck and happy investment property hunting.
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