Owning rental real estate can offer a great way to earn additional income, while at the same time having someone else help you pay down the mortgage and create equity. But, while there can be many nice perks to this type of investment, before purchasing your first rental property, it is essential to be sure that you are financially prepared.
In doing so, one of the primary components of being a real estate investor is to have some cash on hand. Gone are the days of getting 100% (or 110%) financing – especially on real estate that won’t be your primary residence.
With this in mind, there are numerous ways to come up with some cash if you don’t already have it in a savings or investment account. For example, you could look to friends or family to loan you the funds that you need. There is also the option of tapping the cash advance option on your credit card(s) – provided that you have a plan for quickly paying back these high interest balances.
Another potential option is to check into opening a self-directed IRA account. Unlike a regular IRA, these types of accounts allow you to purchase more than just stocks, bonds, or mutual funds. A self-directed IRA will also allow you to take advantage of all the tax benefits that you would get in a regular IRA, including tax-deferred or tax-free earnings within the account.
It is also important that you be aware of the cost of ownership. Just like owning a primary residence, items will break and need to be either repaired or replaced. With rental real estate, figuring that roughly 10% of your rental income will go towards maintenance can help you to avoid any costly surprises.
In terms of leveraging your time, partnering with a property manager can allow you to still take advantage of the benefits of property ownership, yet without the need to actively maintain your property on a day to day basis. For more information on how you can get the most out of working with a property manager, Contact Us.
