Five Key Strategies for Investing in Single-Family Homes
With the market for single-family homes booming, now is a great time to look into investing in this particular type of property. Doing so would boost your income potential and offer a prospective appreciation value benefiting your finances in the future. When you’re ready to make the investment, consider these key investment strategies to help you make the most informed decision.
Carefully Consider Your Finances
Your first step should be to consider your financial situation and what you can truly afford. Just as if you were going to buy a house or get a loan to start a business, you should speak with a bank and receive a pre-qualification to determine how much they would loan you to help you acquire your investment property. If you have cash on hand and don’t require a loan, that will make the process much easier.
You do need to consider a lot of aspects here, though. Don’t just think about whether you have the money to purchase the property, but also whether the rent you could charge would be enough to cover the upkeep and fees associated with owning the home. You need to make short- and long-term projections before determining if a single-family property is truly worth the investment. It would help if you also considered whether it makes more sense to fix and flip the property to sell quickly or keep it for an extended time to receive the rental income.
Narrow Your Market Focus
Deciding to invest in only single-family homes is a great start. It’s wise to focus your investment strategy early on so you can get yourself settled in your plans and boost your confidence as your investment situation progresses. It’s good to go a step further and narrow your market focus.
Where do you want to invest? Which area will give you the best return on your investment and offer steady cash flow as the years go on? Not every state or city makes the right investment market for every individual.
You should consider the hottest markets at the time to help you narrow your search. You may even decide to purchase a property right in your neighborhood or within the same town. This would allow you to easily manage it yourself without the need to pay for a property management company to handle it for you if you live out of town. Certain low-income communities may also prove worthwhile as they can lead to tax incentives if you set the situation up correctly.
Learn About the Available Tax Deductions
Investing in a property like a single-family home gives you access to certain tax deductions. You want to be sure you understand your options and how to claim them properly to make the most financial sense for you. There are at least five deductions that real estate investors can receive, based on various criteria.
For example, if you rent out a single-family property, you can deduct the necessary expenses for upkeep, maintenance, management fees, and property taxes from your yearly tax filing. Your tax details may also need to include:
- Depreciation values over time
- Short-term capital gains
- Long-term capital gains
- Qualified Opportunity Funds
- Self-employment taxes
You might want to consider hiring a tax professional to help you ensure all of the right deductions are being added and the correct selections are being made. You wouldn’t want to miss out on the advantage certain deductions and information can bring because you didn’t know which ones were right to include in your situation.
Vet the Property Well
Not every property is going to make a worthwhile investment. You must be sure you’re vetting each potential property well and considering all potential downfalls before deciding to buy. Just because you can purchase a home for cheap doesn’t mean it will make you a ton of money in the long run. Look at the main components to determine if they’re in solid condition or will require repair or replacement, including:
- The foundation
- The sewer or septic system
- The roof
- The electrical components
If repairs are necessary, be sure you receive contractors’ estimates of how much handling them would cost you. You may realize the home has too much to fix, making it no longer worth it. If you could get away with only spending a minor amount and fixing the property to flip, it would be much more worth the time and effort.
Vetting the property should also ensure no owed property taxes or liens. You don’t want to be stuck with the bill because you forgot to check into the matter.
Be Ready to Close Quickly
Single-family homes are significant investments right now. Many property types are. This means you must be quick on your decision and ready to close quickly. Get the vetting done as soon as possible and decide whether you want to take the investment or not. If you don’t make a swift decision, someone else will swoop in and take it from you. Don’t dawdle and miss out on a great opportunity because of it.
With these key strategies in mind, you’ll be ready to invest in single-family homes within your selected market. You can contact us at Offercity to receive additional guidance on the investment property search and even receive details on already-vetted properties that are ready for you to explore.