Know Your Goals When Investing
Young or old. Wealthy or living paycheck to paycheck. Investment-savvy or just a rookie. Learning how or where to invest money is part of life (Nothing herein is meant to provide financial, legal, or tax advice. You should meet with appropriate professionals for such services).
Many aspects of investing exist. That's why it's impossible to cover everything in a few paragraphs. Plus, there are no exact answers to your questions because there are different approaches to investing. However, one thing is certain. And it follows the old adage: the best time to start investing is "yesterday."
With any investment, you should let your goals be the guide. Here are just a few sample questions to consider and ask yourself:
What is my purpose for investing?
What do I plan to do with the money I earn with a specific investment or overall?
When will I need money?
Depending on your goals, hundreds of investments or investment opportunities are available to you. Mutual funds, bonds, stocks and certificates of deposit (CDs) are common investment products. Or you may have interest in less notable products — annuities, options, futures, gold, ventures, precious objects (metals, art or collectibles), hedge funds, REITs and treasury securities. Those are just a start.
Another popular investment is real estate. It could be rental property or a vacation home. Or maybe you're tired of paying rent to a landlord and it's time to invest in your own home. All are possible ways to enhance your financial plan. But it takes education and planning, because rental properties have some unique requirements that you need to know about before you invest. Here are a few:
Typically, for a one-unit investment property purchase, a 20 percent down payment is required (known as loan-to-value or LTV of 80 percent). For a two to four unit investment property purchase, a 25 percent down payment is required (LTV of 75 percent).
Lenders often require a minimum credit score, usually above 600.
The required income varies, depending on the amount of the house payment and other debt.
You may be required to have ample reserves or more money in the bank than if you occupied the property. Many banks require you to carry at least six months’ payments in reserves for mortgage payments.
You may need to prove to lenders, through tax returns, that you have landlord experience, possibly two years’ worth.
You may be limited in the number of partners you can have in the property.
Taxes and deductions you claim for a vacation home depend on the time you spend at the home. It makes a difference if you rent the property to others most of the year versus if you rent the property for a very short time.
If you are interested, take the time to learn all you can about investment property. Then we can talk with you about the requirements for a loan, property types including vacation homes, and other topics you may have questions about. Then we can move to the next step and find a mortgage that fits your situation.