Financing Options When Buying Real Estate
While purchasing real estate carries some level of risk, purchasing real estate allows for a wide spectrum of possible risk profiles. A solid, real estate investment can solidify your bank account, while a less than stellar one may leave you holding the bag big time or even lose your initial investment. In order to strike that sweet spot between a solid investment and a potentially losing venture, you need to know exactly how to analyze the market to pinpoint the proper properties for purchase. There are many guides and realty websites today that offer property evaluation and analysis. The following is a basic rundown on what you can expect from these guides when you are in the market to purchase some realty investment properties.
One of the first things you will notice when reading up on the analysis of the market in relation to buying real estate investments is the vast difference between passive and active income. Passive income is almost entirely based on what the tenants in your property earn, whereas active income (aside from rental gains) is usually tied to the appreciation in the value of the house itself.
If you are looking at properties for rental purposes, then you must make sure you are able to receive rent on a monthly basis, because without it your capital will be tied up in a property that is not producing any real results. On the flip side, if you are planning on investing in a single family home that you intend on renting out to and paying for monthly rent with your tenant earnings, then you must have a steady stream of tenants willing to pay the appropriate amount for a long term investment.
You must also have a decent understanding of the financing options available to you when you are buying real estate, especially since most financing deals you are offered now will involve some type of rental, mortgage or financing agreement with a third party. Most of these types of financing arrangements require tenants to have an immediate and substantial source of income.
The major problem with these arrangements for buying real estate is that tenants are rarely motivated enough to put down a down payment on the property until they have some certainty as to how much they will receive after the agreed upon term of the lease. This can take years to occur, depending on the overall health of the neighborhood in which the property is located.