The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Information on this website may not be current. This website may contain links to other third-party websites. Such links are only for the convenience of the reader, user or browser; we do not recommend or endorse the contents of any third-party sites. Readers of this website should contact their attorney, accountant or credit counselor to obtain advice with respect to their particular situation. No reader, user, or browser of this site should act or not act on the basis of information on this site. Always seek personal legal, financial or credit advice for your relevant jurisdiction. Only your individual attorney or advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, contributors, contributing firms, or their respective employers.
Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them. Compensation is not a factor in the substantive evaluation of any product.
The homebuying landscape can be difficult and confusing to navigate, but real estate can be wealth-building tool. If you are thinking of buying a place as a way to build your net worth, you might want to consider an investment property instead of your dream home.
Most people wait to get involved in the housing market and often wait to buy an investment property until after they have bought a house to live in themselves. But you don’t have to do it in that order. Instead, try calculating how much house you can afford and start looking for a home with high appreciation potential. This is very different from looking for a home that you see yourself growing old in.
Unlike other investments, you can see and feel what you own when you invest in real estate. Real estate investment is often easier to understand than stock and bonds for most people and can help diversify your investment portfolio significantly as it has low volatility. Keep in mind that, being a tangible asset, it can take on damage and have problems and extra costs that stocks and bonds do not.
One of the most attractive aspects of real estate investments is the significant proportion of total return. Since rent will be paid to you and rent increases are currently outpacing purchase price growth in most parts of the country, you could make more in rent on your investment property than you have to pay in mortgage payments on the home. You can make money on your rental property immediately if you are able to charge more in rent than your mortgage payments.
Another way to make money for the long term is to pay off the home and continue to rent it out or sell it when the market is hot. As with any investment, you need to make sure the numbers pan out and you need to be confident rent payments will continue to cover your mortgage costs, or else you could lose money on the property.
Speaking of hot markets, buying an investment property allows you to look in areas you wouldn’t necessarily want to live in but that are desirable to potential renters. Interest rates are near all-time lows making it an ideal time to buy a rental property if you can pay in cash or qualify for a good mortgage rate. (Your credit score has a huge impact on this — you can check two of your credit scores for free on Credit.com to see where you stand.) If you are looking to invest in an area where home prices are on the rise, consider purchasing short sales or foreclosed homes.
When you are on the hunt for an investment property, whether it is your first or fifth, it’s important to focus on finding one that will make you money — even if you wouldn’t want to live in the home.
Image: iStock
December 13, 2023
Mortgages
June 7, 2021
Mortgages