Owning a second property is a great way to generate income. You can fix and flip a house, buy land and wait for it to appreciate, or rent residential and commercial properties.
Despite common belief, these concepts aren’t reserved for seasoned real estate investors, and you don’t need hundreds of thousands of dollars to get started. With enough money for a down payment and proof of concept, you can find a handful of fantastic investment property opportunities in desirable areas, like Western Colorado.
Things To Consider When Buying an Investment Property
Location is one of the most influential aspects of a great investment property. You need to find an area in which the real estate market is appreciating and there’s either a high population of buyers – if you intend to sell down the road – renters – if you want to rent it – or businesses – if you’re buying a commercial property.
Riding on the successes of the greater Colorado real estate market, Western Colorado is an opportune place to purchase a property. Not only are there many different property types, but they are more affordable than on the Front Range and are speculated to continue appreciating.
For more in-depth information about the Western Colorado real estate market, check out my blog post, “Why You Should Buy Property on the Western Slope Colorado,” when you’re finished with this one.
What Kind of Investment Property Do You Want?
Western Colorado has a thriving agricultural economy, tons of recreation, and a growing population, making it an ideal location for all kinds of real estate investments. Here are a few ideas:
When it comes to land for sale, Western Colorado has plenty and prices are increasing. You could purchase land now and sell it later, rent it to farmers and ranchers, rent it for recreational use, or even develop it.
Colorado vacation homes make incredible investments, especially when you position them as getaways for hiking in the summer or skiing in the winter.
Cabins in Western Colorado range from one-bedroom hunting cabins on hundreds of acres to luxurious mountain homes in bustling cabin communities.
What Do You Want To Do With It?
Another consideration for buying an investment property is what you want to do with it, which correlates to your level of involvement and how much money you want to make. For example, you may want to manage a short-term rental cabin on the Grand Mesa – big commitment, but lots of return – or you may want to buy land for sale and wait for the right developer to make an offer – little commitment, uncertain return.
How To Buy An Investment Property
When you’re purchasing an investment property in addition to your primary residence, the process may look different than the one you went through to buy your first home.
Using a home equity loan is one of the most popular methods to obtain an investment property. A home equity loan allows you to cash out the equity you’ve built in your current home, pay that money back to your lender over time, and use it toward the purchase of your new investment property. To qualify for a home equity loan, most lenders need to see the investment property’s internal rate of return, or how much money it will generate.
If you don’t want to take out a home equity loan to purchase your investment property, you must keep in mind that down payment requirements and interest rates tend to be higher for investment properties than primary residences. As a general rule of thumb, most real estate investors put 20-25% down (although some loan programs allow you to go as low as 15%).
Tax Benefits of Buying an Investment Property
In addition to generating income, owning an investment property can help reduce your tax burden. For one, you can deduct owner and operating expenses and depreciation from your revenue. Second, you can take advantage of a 1031 Exchange, which allows you to defer capital gains tax by exchanging one like-kind investment property for another.
Explore Western Colorado For Yourself
Whether you’re looking at an in-town home, commercial property, recreational land, or Colorado farms for sale, I would love the opportunity to help. I, and my team at United Country Real Estate Western Land & Lifestyle Properties, have dozens of properties for sale in Colorado, and many of them would make fantastic investments. Take a look at WeSellTheWest.com and contact me if you want to set up a showing.