Investment Real Estate Basics

You’ve heard purchasing a rental property is a tangible form of investment diversification. But what exactly does buying an investment property entail? This month, we’ll dive into the basics of real estate investment and questions you can ask to see if it’s a smart option for you.

Real estate investment benefits

Building a real estate portfolio offers a variety of benefits, including:

• Passive income: Steady rental income can help cover mortgage payments and home maintenance costs. Positive cash flow can also be reinvested, helping to grow your net worth.
• Tax advantages: Mortgage interest, property taxes, and operating expenses for investment portfolios can be deducted from taxable income. Real estate investors can also deduct a portion of a property’s value each year, again lowering taxable income.
• Diversification: Having a tangible asset, like a rental property, can help balance total investment volatility. Additionally, homes tend to appreciate in value over time.
• Flexibility: There are a variety of approaches to real estate investment. From single-family homes to multi-family developments and short-term rentals, options exist for the level of time and resources you and your associates may have to dedicate.

Questions to consider

While the decision to purchase a rental property takes into account many factors, I have summarized those which I receive most often below.

• Are investment loan rates higher than primary resident loans? Typically, yes. Similar to a primary residence mortgage loan, your rate will depend on factors such as your credit history, debt-to-income ratio, and the size of your down payment. GreenState offers several loan programs, including both in-house and secondary investment loans.
• Can I refinance an existing loan for investment purposes? GreenState offers a variety of refinancing options, including cash-out refinances, that can provide you with a lump sum to make improvements to existing properties or expand your real estate portfolio.
• Can I purchase a property with an LLC? On the residential side of lending, we are not able to finance a property in an LLC’s name. However, GreenState does offer commercial loans, and I’d be happy to make an introduction for you.

If you’re interested in learning more about real estate investment options or would like to talk through any of our loan programs in more detail, please send me an email or give me a call. It would be my pleasure to help you.

COMMON QUESTIONS

Q: How do I find the right investment property?
A: This is where a Realtor® comes in. A Realtor® can help you evaluate neighborhood vacancy rates, provide rental estimates, and locate properties to meet your long-term investment goals.

Q: Do I need to get prequalified to purchase a rental property?
A: While not necessary, it is highly recommended. Similar to purchasing a primary residence, a prequalification letter will show sellers you’re a qualified buyer and serious about the purchase.