Investment Property Basics

With the potential to access a lump sum payment from your structured settlement or lottery prize winning, you might be looking to invest in something that will offer a return on your money. If you don’t think that Wall Street and financial advisors are for you, then you could consider real estate, or more specifically, an Investment Property.

With historically low mortgage rates and affordable real estate prices, investing now can quickly offer decent returns. There are few things that you should consider first, though.

Local Market Conditions

There is no guaranteed formula to be successful, but studying historical trends in the local market  will help you get a better idea of what to expect.

You’ll learn whether your new property’s value is likely to increase over time (or appreciate in value) or if it is likely to start losing its value (or depreciate).

To Rent or to Flip?

You will also need to determine if you intend to keep the property and act as a landlord for renters or to fix up the property and try to resell it. Both have their plusses and minuses.

  • With a rental you will have to balance the potential for decent returns against things like rent collections, potential evictions, vacancies, bad tenants and costly repairs.
  • With reselling, a good return on the investment must be weighed against cost of fixing the home up and the state of the market when it goes up for sale.

Calculate your Yield

If you are buying a property to rent it, you will want to make sure that the income from rent you are receiving (converted to a percentage using the amount that you paid for the home) is higher than the mortgage rate you are being charged. Otherwise you are losing money by having to put your own money towards paying the lender back. Here’s a quick calculation to illustrate:

Amount to be Repaid $200,000
Annual Rent $14,400
Percentage Return 7.2% (annual rent amount to be repaid)
Mortgage Rate 5.0%
Difference +2.2%

In this situation you will be able to pocket the extra 2.2% (roughly $4,400 in this instance) that the income property generates over the course of the year.

According to this aboutmoney.com article, as a landlord you can take advantage of some hefty write-offs when it comes tax season, too.

Be Prepared for Lean Periods

If you are renting out your investment property, there is never a guarantee that it will have renters at all times. This is why some experts recommend putting aside 10% of your rental income into an account as a form of insurance money in case the home is unoccupied, or something needs to be replaced or repaired. It might not cover it all but it does help to pay some of the costs.

If an investment property is in your future and you need help turning your structured settlement or lottery prizes into a lump sum payment for a down payment, Your Trusted Source® can help turn your those dollars into dreams.

Talk to a SenecaOne Funding or Lottery Specialist at 1-800-513-1394 to find out how they can help to provide personalized cash-flow solutions and services to help you get your money fast.

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