Investing in real estate can be a worthwhile, stable investment if it is handled the right way. Although many people have gotten rich in real estate, many others have gone bankrupt in the process. In fact, even Donald Trump went bankrupt back in 1990.
One of the most important things for real estate investors to do is to be sure that they fully understand the investment process. Without the help of a professional, it can be hard for investors to fully understand their options. As a real estate agent, it is your responsibility to educate your clients on how to find a worthwhile investment and how to manage that investment wisely.
#1 Advise Your Client on How to Secure a Loan With Rental Property
If you have a client that is wanting to invest in a smaller rental property, one with four or fewer units, provide them with information on loan options. In most cases, a conventional loan will be required for these types of investments. Make sure that your client understands that they will need good credit and 20 percent down for a conventional loan. In most cases, investment mortgages require larger down payments.
Although your client might be able to secure a standard mortgage with just five percent down, they will need to demonstrate that they have enough income to make the payments. In addition, it is not always the best idea to secure a mortgage for an investment property with a low down payment. In addition, it is important that they understand that if they are interested in larger properties with more than four units, they will have to secure commercial financing, which has different requirements and is more expensive.
#2 It Really Isn’t Passive Income
If your client is investing in rental property, make sure that they understand that the term passive income is a bit misleading. Rental properties require some type of active management. Even if your client plans to use a property management firm to manage the rental, they will have to take the time to select the right firm. In addition, property management fees tend to be take up about 10 percent of the properties income. Also check into your area, as Town Residential notes percentages can vary greatly when it comes to luxury apartments for sale in NYC.
#3 Experience Is Important
If your client or clients are previous or current landlords, this can make a big difference in whether or not they can invest in a property. Having verifiable experience will help your client more easily secure a loan. If they do not have this experience, ensure that they understand that they will need a large, 20 percent or more, down payment plus verifiable income to secure a loan.
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