Investing in real estate can be a tricky prospect, especially if you’re a new to the market and this is your first time. One thing that’s important is to know the numbers. These figures tell you if your investment is sound, and can help you keep your investment on-track and avert any unexpected and unpleasant surprises.
The Listing Price
MashVisor suggests that, before investing, you not only decide on a budget for the type of property you want, but that you also get yourself pre-approved for a mortgage in the amount you’re willing to pay so that you stay within the number you’re comfortable in.
The Mortgage and debt to income ratio
This one probably sounds like a no-brainer, but depending on the type of real estate investment you’re making, you need to consider whether or not a lender will approve your loan, and that depends on several factors. For one, there’s your debt to income ratio – meaning the comparison between an individual’s monthly debt payment and their income. According to Investopedia, for an owner occupied home, that’s around 36%, although for an investment property, the maximum might be higher – around 45%.
Remember that there are many extra costs to consider when investing in a property. Insurance is a big one, but so is property management, which can be substantial and include routine costs such as renovations, maintenance and much more. And don’t forget the various property fees and taxes.
ListenMoneyMatters suggests using a program to keep track of your monthly income minus your monthly expenses. Consider building a spreadsheet with factors such as expected rental income, property fees, insurance, repairs and maintenance all included. This should allow you to see the big picture and determine whether or not the investment makes sense.
If you’re buying a rental property, this is something worth considering carefully. While many assume they’ll be able to rent out their properties without much trouble, the fact is, depending on the market demand rises and falls. If you’re renting during one of the slower periods of the year, such as the winter, you may have trouble finding a tenant, so you should always be prepared for some kind of vacancy rate, although this can rise and fall pretty quickly.