An investment property is a great option for anyone looking to put down a little cash to earn back even more, but especially for individuals seeking retirement. By investing your money, you not only have a vested interest, but you also have the benefit of regular monthly income you can count on. However, like most investments, an investment property comes with a few risks. So, before you take the plunge, consider a few things about purchasing an investment property first.
What You Need to Know
When you were purchasing your home, you probably did some research and financial planning prior to it. The same is true and even more so when purchasing an investment property. Before you select a property and invest you retirement monies into it, you need to know a few things.
1. The property must be “eligible.” – Depending on your investment options, certain property types don’t qualify. With most plans, you must purchase a business property, not a personal residence or second home. In most cases, even an occasional rental property doesn’t suffice.
2. You must have the cash. – Your financing options are typically more limited when it comes to investing your retirement funds in a property purchase. In most cases, you are not able to get a traditional mortgage, so you must have enough cash on hand with your retirement funds to make the purchase.
3. Diversifying is still important. – Investing in an income property is one of the best ways to get a regular, consistent return on your investment. However, it is still not the best business practice to put all of your funds in one account. Be sure to make considerations as far as diversifying your assets.
4. The property comes with different rules. – Because an investment property is a different type of purchase compared to a typical home purchase, there are a number of rules that surround the investment. For starters, you cannot live on the property or incur any direct benefit from the purchase.
5. You are responsible. – One final consideration you need to make before committing to a real estate property is the fact that you are primarily responsible for the success of the investment. Compared to investing in stocks or bonds from other companies, you are the sole proprietor in this instance, which can actually be a big plus for most investors. To avoid getting into any unsuitable situations, it is a good idea to guarantee a pre purchase inspection or house inspection prior to the purchase.
What You Need to Do Next
Once you decide to place your money into an investment property, there are a couple of things you still need to do.
- Develop an understanding of how real estate works.
- Analyze the market.
- Find an appropriate property.
- Oversee a pre purchase inspection and insure the house inspection is accurate.
- Complete the transaction.
One of the biggest benefits of an investment property is being able to contribute additional funds to your retirement account. While you are limited on how much you can contribute to the account each year, there is no cap on how much a retirement account can earn. That’s worth investing in.