If you’re considering investing in Denver Real Estate, you probably have some initial questions. What options do you have for funding? How will you increase your ROI? What are the tax obligations? If you ask any of these questions, you have come to the right place. This article will tell you everything you need to know about how to make a real estate investment.
Research the current state of the market
Prices were high early in 2022 but came down as the year went on. It’s possible that they will dip slightly again in 2023. Knowing what the market is doing will help you think about how to best proceed when you find a property that you like. Since some homes in the area are selling quickly, you’ll want to prepare to act fast. The best way to learn about the state of the market is to speak to a professional, expert Realtor, as they will have the knowledge and insight you need to make an informed decision.
Get your finances in order
You have several options for how you’ll pay for your investment property. You can apply for a traditional loan like you would if you were purchasing a home for personal use. If you go this route, you’ll want to speak with multiple lenders to see who can offer you the best interest rate. You’ll also need to have enough cash on hand to cover your down payment and your share of the closing costs. The exact amounts can vary based on the type of loan you’re using and the specifics of the contract. Normally buyers must put down at least 3% of the total cost of the home. Closing costs tend to range between 2-5% of the home's overall value.
Traditional loans aren’t your only option when you’re looking to buy an investment property. Many home flippers will use hard money loans to fund their purchase. These loans are sometimes easier to qualify for, and you can sometimes get the money quicker than if you were applying for a traditional loan. The drawback is that interest rates are often higher. Other investors will tap into their existing home equity through a HELOC, or a Home Equity Line of Credit. There’s also the possibility of using a cash-out refinance, but this will likely extend the life of your current mortgage.
Traditional loans aren’t your only option when you’re looking to buy an investment property. Many home flippers will use hard money loans to fund their purchase. These loans are sometimes easier to qualify for, and you can sometimes get the money quicker than if you were applying for a traditional loan. The drawback is that interest rates are often higher. Other investors will tap into their existing home equity through a HELOC, or a Home Equity Line of Credit. There’s also the possibility of using a cash-out refinance, but this will likely extend the life of your current mortgage.
Think about how to maximize your ROI
Owners of investment properties have a few options when it comes to generating income. You can take steps to improve a home before putting it back on the market. If you flip the home, you should research which projects and renovations provide the greatest ROI. You’ll also have to consider how much you could raise a home’s value beyond its current price point to make the investment worth your time and energy.
The other option is to rent out your investment property on a short-term or long-term basis. There are benefits and drawbacks to either option. Long-term rentals often provide more security since you usually have a contract with a tenant that can range from a few months to an entire year. Short-term rentals can produce more income on a nightly basis, but you’ll have to make sure you effectively market the property so that you have tenants regularly.
The other option is to rent out your investment property on a short-term or long-term basis. There are benefits and drawbacks to either option. Long-term rentals often provide more security since you usually have a contract with a tenant that can range from a few months to an entire year. Short-term rentals can produce more income on a nightly basis, but you’ll have to make sure you effectively market the property so that you have tenants regularly.
Consider the tax implications
Owning an investment property comes with unique tax implications. If you already have a large investment portfolio, this information may be familiar to you. If this is your first investment, you’ll want to keep these things in mind when you file your taxes. You might schedule a time to sit down with a CPA who specializes in investment properties so that you can fully understand what’s required of you.
There are different rules depending on how many properties you own and how many nights you rent it out per year. An expert Realtor like Elise can help you learn or point you toward a professional who can work with you.
There are different rules depending on how many properties you own and how many nights you rent it out per year. An expert Realtor like Elise can help you learn or point you toward a professional who can work with you.
Hire a property manager
Many people who own investment properties choose to hire a property manager who can respond to urgent maintenance calls from tenants. This is especially helpful if you don’t live in the same town where your property is located. They can also visit the home to prepare for changes in weather and seasons, hire cleaners between different tenants, and be on location in case of an emergency.
Work with an expert local realtor
Elise Losasso works with investors on a regular basis. She understands the unique questions and concerns that they bring to the table. More importantly, she takes pride in serving each of her clients with professionalism and respect. She would love to represent you throughout the entire process of purchasing Denver real estate. Reach out to Elise when you’re ready to get the process started.
