If you can handle it, investment properties can be a pretty foolproof way to build net worth and invest. Buying real estate for investment purposes, however, is different than buying a house to live in. The whole idea centers around the ability to collect rent from a tenant which covers your mortgage payment and hopefully provides extra income, called cash flow. Let’s break down the basics of how buying investment property works.
What are the Benefits of Investing in Rental Real Estate?
The primary benefit of property investing is the forced building of equity. When you make a payment towards your real estate loan (or rather, your tenant pays it for you through rent) part of the payment goes to the principal of the loan. Each month you make a payment towards the principal you build more and more equity in the property. Ideally, while this process is going on, you are also producing cash flow on the property.
Cash flow is simply described as the extra money you make over your mortgage and expenses. So simply if you collect $2,000 in rent on a house and have monthly expenses of $1,500, you would cash flow $500 per month on the property. That is $500 in extra income every month just for owning and managing a rental property. Now, of that $1,500 loan payment, let’s just say $1000 of it was interest and $500 went towards the principal of the loan. This effectively increased your net worth by another $500 each month!
How do I find a good Rental Property to invest in?
Finding a good rental property to invest in starts with learning about the market you want to invest in. Normally, other landlords and real estate agents in that area are the experts on buying rental properties. You can potentially find a local landlord to talk online, but the best place to start is by contacting a real estate agent. They will work for you by finding property for you to invest in and have deep local knowledge about the real estate market.
A reputable real estate brokerage, like bozehome + co, for example, does the largest commercial and investment deals in Montana. Our agents are ready to help you start your real estate investment journey. Give me a call or send an email to learn more about potential investment properties in Bozeman, Livingston, Belgrade, Big Sky, and beyond.
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