Deciding to purchase an investment property can be an intimidating and scary thing. It is a big financial commitment and it takes a lot of planning and a lot of discipline in order to make it work. But as long as you are willing to put in the effort, take the time to do the research and do what needs to be done, you can safeguard your finances and make sure you do not end up in the red. Here are 3 steps to protecting your finances when purchasing an investment property.
Choose a Mortgage that is appropriate for what you want to do
There are a lot of different mortgage options out there, and the one that is the right fit for you could depend on many different variables. One of the most impactful variables is what is happening within the real estate market when you buy your property, depending on this a variable rate mortgage may be preferable – but then again, maybe not. Keep in mind that the last thing you want is for interest rates to rise and not be able to cover your investment property and it’s associated expenses. The best thing to do is sit down with a mortgage advisor to learn what all the options are and figure out what makes the most sense for your situation. When it comes to mortgages there is no one-size-fits-all answer. So this is definitely one thing that you will want to do your research on.
Make Sure that there will be Enough, Stable Cash Flow
The absolute number one thing you must do to protect your finances when purchasing an investment property ensures that the property will cash flow. This means you have to add up every single expense. This includes the mortgage, property tax, insurance, etc., and make sure you can get back a higher amount of monthly rental income. It is amazing the number of people purchases rental properties with the assumption they will make money and they never do the complete calculation. If you can’t find a way to make the property cash flow you will always end up losing money.
Work with a Qualified and Experienced Accountant
Yes, it is certainly possible to do your taxes yourself. However, if you are going to be dealing with investment properties it is suggested that you make an effort to work with a knowledgeable accountant to make sure your finances are in order. When you own investment properties there are a lot of details and tax implications that have to be considered and taken care of. That said, there are also a lot of potential tax breaks. Because of this, it is so important to make sure that you are working with a qualified and experienced accountant who is familiar with rental properties. It is important that they are knowledgeable of the income that rental and investment properties can generate can help make sure you are making the most of these potential savings.