Making any sizable investment requires a considerable amount of consideration. And buying an investment property surely fits into that category. But for those who haven’t considered buying an investment property in 2017 or are thinking about it but haven’t made the final decision, here are a few things you need to know about buying a rental property.
It’s no secret that property values have risen over the past few years. That also means rental rates go up along with them. When analyzing a potential purchase, the primary factor is cash flow. After calculating what the total monthly mortgage payment would be including taxes and insurance as well as maintenance costs, does the rent provide enough income to not only pay for these costs but provide additional income? If so, then the proposal has merit. When owning an asset that grows in value over time while paying you each month, that’s an investment that’s hard to match.
However, there are a couple of things to consider about timing. As property values rise, that means waiting could require more down payment from you due to the higher cost. If property values increased 5.0 percent over the past year, that means a home valued at $250,000 is now worth $262,500.
And just as importantly, interest rates won’t stay low forever. Rates have been gradually on the rise and there is no forecast for the Fed to lower rates. In fact, the Fed has signaled just the opposite. These two facts alone suggest that if you’re looking at buying an investment property, sooner rather than later might be the prudent choice.