HOW DO I START INVESTING IN
The buy and hold and rent strategy has made millionaires of many, many people. It’s a strategy that works. Here’s how to do it.
You have to first get a solid feel for how much you'll be able to charge in rent for the type of property you're thinking of buying. So you first want to research rental listings in your area. Use the newspapers and drive through the neighborhoods in which you are interested. Call owners of property for rent ask questions about the property. Talk with a competent Realtor to find out what the rental market is like. Don't even think of buying until you're confident you understand how much renters are paying.
Then it's time to start looking at properties for sale. When you do, you'll need to come up with a realistic, conservative (i.e. on the low side) estimate of what you think you could charge in rent for the property you're considering. (If you can't, go back and look at more rental properties.)
Use a competent Realtor to help you in your home search. He/She should be able to provide you with information on home prices in the neighborhood. Your goal is to buy the property at a discount to improve your cash flow on the property.
Once you've found a property and made your rent estimate, you then need to work out your monthly costs: mortgage, upkeep, taxes, insurance, etc. If you can't cover these costs with your estimated rent, you’ll have a negative cash flow. Ideally, you want to make sure you have "positive cash flow" (i.e., rent minus expenses equals more than $0).
If you calculate zero or below, you might still make money if the property appreciates in value, but with the recent run-up in prices, you certainly can't count on that happening. History has shown that property values and rents both go up. Many people use an average estimate of 5% per year.
You'll also want to talk to a tax advisor to find out what impact this rental income has on your return. If set up properly, rental property should have a positive impact. But you'll want to know all of the tax angles before you buy. You may have to pay a fee to a tax expert for this. But it could save you thousands of dollars in the long run. (Consider it a tuition payment in real estate school.)
Make sure to ask as many questions as you want at every stage. No question is too basic. To get a loan, you'll have to show enough income and assets to meet the lender's minimum requirements. But it's not their job to decide whether you can really afford it or whether the property will make money for you over the long term.
If you've gotten this far, take a deep breath and re-check everything again. Don't buy until you're satisfied you understand every detail.
If you are like most people your own home is probably one of the best investments you have ever made. My advice is buy one more! Just get started. Most people never start and let opportunity pass them by.