When considering including real estate as part of your investment portfolio, there are a lot of factors you will need to consider. It is not just a matter of deciding on a property to invest in, because you will also need to answer a few questions about your investment. Not every real estate investment is the same, and not every investor is the same. Here are ten things to consider before you start investing in real estate.
First, are you ready to invest in real estate? You need to be both mentally ready and financially set. Remember – if your property is between renters, you still have loan payments you need to make and other obligations to uphold. You may wish to consult with your investment advisor about your current portfolio and how much you can afford to carry until you begin to see a real return on investment.
Next, set a plan. It will help map out your strategy and define for you what your goal is in terms of investing. Your plan will help guide you should you want to make changes along the way. Your plan can also help you understand all of the expenses you will incur along the way, including utility bills, fees for your experts, times when no one is renting from you, and maintenance and repair costs.
Then, decide what kind of property you want to invest in. You could invest in rental properties, or you could buy homes with the intent to fix them up and resell them, a process called flipping. Then there are commercial properties you could invest in, like retail buildings or multi-unit residential units.
You will definitely need to have a solid base for financing the properties you choose. If you have the cash to make your initial investment, you can do a lot more with purchasing homes quickly and saving on the mortgage amount every month. Remember that though interest rates are low now, there is no guarantee against future increases, so should you choose to finance, make sure you lock in a low rate with a fixed rate loan.
Consider the current vacancy rates in the area where you want to buy your investment property. A lot of vacancies near the house you choose do not bode well for you to be the successful one to find renters.
Sixth, decide who will do the property management. If you intend to live on-site, you can certainly take on this task yourself. But, if you are not going to live on-site, or you don’t feel confident in doing the property management piece yourself, by all means hire a professional property manager or sign a contract with a PM company.
When you are ready to buy, it can be a help to find a real estate agent who specializes in investment properties. They will be more knowledgeable about finding you properties that will suit your unique needs.
Ensure that before you buy you get a complete home inspection done so any minor repairs can be taken care of and any major repairs can be steered clear of. Solving minor repairs may mean that you can add value to the rent.
Remember that being a real estate investor, particularly if you go the landlord route, is a business. You will need to keep financial records, comply with regulations, and file legal documents. Having a team around you who can help you with these tasks will be necessary.
Lastly, what is your exit plan? Though you might be in real estate for the long run, eventually you need to sell the property. If the economy drops again, you won’t be able to sell it easily or if you do, it may even be for a loss. Having a plan for what you will do for each property will help ease the stress of a softening of the economy.