When deciding on whether you want to go ahead with investing in a property, some key factors to take into consideration include affordability, financing and the expected return on investment. One question to always keep in mind is, "How much can I make on the investment?" There are plenty of costs that might cut into your potential profits, especially ones that aren't obvious right from the start.
The budget you're comfortable with should include the purchase price and all costs of the acquisition, from initial renovations, maintenance and tax rates to vacancy period losses and rental management if that applies.
You can leverage the property at low risk by using financing in a low interest rate environment. This allows you to keep more of your cash and diversify your investment portfolio in the long run.
It's important to identify your own goals and how they might be affected by the fluctuating market. If generating income for a long time frame is your main purpose, purchase price isn't as significant compared to making sure that cash flow is positive and trending upward. On the other hand, if you're looking to maximimize proft, the price you pay upfront makes much more of a difference.
If the neighborhood you're looking in has a high risk of change, this can easily cost you the value of your investment. Conduct your own research or work with real estate professionals to identify a location that has, and will likely continue to remain desirable.
When the cash flow being generated is not needed immediately, reinvesting the income from the property into a market-based investment or additional rental properties can significantly maximize your wealth for long-term gains.
Overall, investment properties are an avenue for diversifying your portfolio, especially if you don't need to rely on it for liquid assets and can afford to own for a long period of time. Just like with any other investment, the importance of doing your due diligence in understanding the commitment and effort that is required cannot be overstated.