Article
Thinking of Investing
Buying a New York condominium as a second-home investment can be very rewarding, but doing your homework first is necessary. Often investors are attracted to the real estate market because it seems like a guaranteed profit. In the last quarter-century, average home prices in the US have climbed almost every year. However, most people have enough difficulty paying just one mortgage. There are many strategies for investing in real estate. Some, such as buying land and building new houses, apartments and commercial buildings, are the domain of developers.
Nevertheless, you do not have to have deep pockets to buy a second New York condominium home as an investment. As with so many things, success at investing in real estate depends on doing your homework. Bookstore shelves are full of how-to guides for the neophyte. There are also seminars and home-study courses available. Whatever your method of educating and preparing yourself to invest, you need to learn how to locate a property, inspect it to make sure it isn’t a money pit, run the numbers to see whether rental income will cover your carrying costs, secure financing, negotiate a deal and close the transaction.
Buying a New York condominium house and renting it out while it grows in value sounds easy. This strategy can be effective if you buy the property, sit back and watch it appreciate while someone else pays your mortgage through their rent checks. However, be prepared for the headaches of being a property owner. You will have to cope with plumbing emergencies and the like, as well as general upkeep, or pay someone else to do it.
You will also have to deal with tenants who are tardy with the rent, make noise, upset neighbors and abuse the property. In addition, you must ensure that the investment will be a paying proposition. Remember that property owners can usually deduct management costs, taxes and mortgage interest from their tax bill. Consult your tax advisor to find out the details of tax treatment.
It is every repair person’s dream to purchase a neglected house in a good neighborhood, put a few thousand dollars into renovations, and sell it a few months later at a profit. This can be a successful strategy for those who are good at estimating renovation costs as well as handy with a hammer and nails. To come out ahead you will also need business smarts, or you will have to hire some, you may need the help of a lawyer, accountant and an escrow company, among others.
To make your investment worthwhile, experts suggest that you aim to add two dollars to the New York condominium home in value for every dollar you spend on improvements. While real estate has proven to be a reliable investment, there are risks attached to both of these strategies. If you are buying and holding a rental property, a slump in the local rental market could force you to reduce the rent to a level that is not profitable, or leave you tenant less for a period of time. If you are renovating and flipping, local layoffs or a sudden hike in interest rates could make your fixer-upper hard to resell. With either of these strategies, you have to arrange financing at the lowest possible interest rate to maximize your profit. That means timing your investment to coincide with low market rates, and shopping around to get the best mortgage deal available.
If you are planning to buy and hold a rental property, you can consider a long-term adjustable rate mortgage or a traditional fixed rate loan. If you are going to renovate and flip a property, you are probably better off choosing a one-year or two-year ARM, to take advantage of the very low initial interest rates currently available for these products. You also need to think about where the down payment for your investment property will come from. The most cost-effective source of financing could be the equity in your own New York condominium home.
You can take out a low-interest home equity loan to make a down payment on a rental property and repay it out of rental income. Remember however, that will increase the debt secured by your primary residence. If you are renovating and flipping, consider a home equity line of credit that you can draw on for renovation expenses as well as your down payment.
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