Know Your Financial Readiness for Prescott Income Property

Prescott's Real Estate Investment
Resource Center

PRESCOTT REAL ESTATE BUYER'S GUIDE

	Define Your Investment Goals
	Identify Your Needs & Desires
	Know Your Financial Readiness
	Find an Income Property Advisor
	Establish a Relationship with a Lender
	Develop a Purchase Strategy

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Know Your Financial Readiness

Before you begin your search for Prescott income property you will need to be clear about your financial readiness in order to understand where and what you will buy. Some key questions you will need to answer are:

How much money can you afford to put towards the offer (earnest money) on your income property?
How much of a debt obligation you are prepared to undertake? What is the maximum that you will be able to borrow?
How is your credit rating? If you don't know know get a free one at: www.freecreditreport.com
What is your net monthly payment comfort level? Set a maximum dollar amount and do not exceed this threshold when searching for properties.
Are you cognizant of the current loan product available on the market today?

Three key areas to consider when evaluating your financial situation are cash flow, leverage and taxation.

Cash Flow
Create a balance sheet that captures all of your income and expenses to better understand your cash flow and how you will cover all monthly expenses related to owning a Prescott income property. This will also help you determine where and how much investment capital you can access. List all of your current investments - including your own home, stocks, insurance, etc. - and determine if you should be moving money from areas that are not performing well into your real estate investment. Determine an amortization and mortgage term that you are comfortable with and realize the duration of your obligation to a lender.

Leverage
Prescott Real estate transactions usually involve the borrowing of funds. How much of your own funds you should contribute and how much you should borrow varies in every situation. Leverage rises as the ratio of debt to equity increases. Educate yourself on the basics of leveraging and seek professional advice to ensure you understand the implications of borrowing, interest rates and both positive and negative leverage.

Taxation
Tax liability applies to income properties in two areas: taxation on operations (the rental revenue) and taxation on profits from sale. However, real estate can have many tax sheltering opportunities. A chartered accountant or taxation lawyer will be able to advise you on the tax liabilities and tax shelters that apply to owning an income property.

It is best to consult with your accountant or financial planner to adequately understand all the implications of owning an income property before you begin your search.