Home buyers often tend to confuse their home loans with investment property loans, leading them to make wrong decisions and literally waste their hard earned money.
Is your home a good real estate investment? The short answer is – usually not. Although it sounds like the best combination: buying a home and making a good investment at the same time, chances are that you will not be able to find both. In the rare occasion that you do, however, you should do your homework with online loan estimators, so that you will be able to negotiate a loan that is flexible enough for your needs.
Buying a home is an emotional decision. You can fall in love with a house, starting to imagine how you will decorate it, which furniture you will buy, where your kids will play. While all these are very relevant factors for a place that you intend to live in, they are usually not relevant at all when you come to make a real estate investment.
A real estate investment should be based on 2 factors only: How much passive income you can generate from the property, and how much you can get when selling it, when you decide to do so. If you can’t rent out the property for more than your monthly mortgage payment, it is a bad real estate investment. If prices are on a decline, and you might be selling the house for less in 2 to 3 years, it is a usually a bad real estate investment.
What kind of a loan should you get for your home/real estate investment? The short answer here is – a very flexible one. While you live in the house, you want to be paying your loan according to your available income, which can and will change throughout the years. When you turn it into a real estate investment, you will want the loan payment sum to be small enough so that you are renting it out for more, thus pocketing a net sum (which will be considered the “passive income” that your investment is generating) every month. You also need it to be flexible enough so you can return the entire loan at any point in time once you sell the house.