There are many reasons why investing in real estate may seem like a profitable idea. Before you make the plunge with your financial well being, here are some things for you to consider about becoming a real estate investor.
- Don’t fall for the flip. If you’re a first-time investor, you don’t want to dive in with a rehab project. Fixer-upper properties can seem like a get-rich-quick scheme, but in all likelihood, can cost you much more than you ever imagined, and you could lose money by the time the house sells.
- Don’t dig deeper if you’re already in debt. If your finances are even the slightest bit tight, especially if you have household members to support, don’t invest your savings or go deeper into debt thinking an investment property will solve your problems. It won’t. In fact, it will likely cause more. Investment properties are logical for people who are financially secure and who can afford to lose. Investment properties are not wise choices for anyone who is wrestling with their budget.
- Check your handyman skills, or your contractor relationships. If your first investment property is a rental, you’re likely going to run into maintenance issues sooner or later. How are your plumbing skills? Can you handle electrical work? Are you updated on all the codes and regulations? If not, how many contractors do you know that you can trust, and that you can afford? If you don’t know how you’re going to fix a problem, or whom you can afford that can, you’re not ready for your first investment property just yet.
- Know your numbers. Your real estate investment has got to be handled like a business. Know what you have to invest, what your margins are, what you stand to gain, and what you might lose. It won’t make sense to take a mortgage on a property where the mortgage payment exceeds the rental value. Real estate investments aren’t about attaching yourself to a specific property, but about managing the transactions. Eventually, as you grow as an investor, you’ll likely be handling multiple properties at one time, so learn the business aspect before you dig in.
- You need to work with a professional real estate agent who understands property investing. Chances are, you’re not a jack of all trades and don’t know the ins and outs of the real estate business and real estate law. Form a solid relationship with a professional real estate agent you can trust to find you profitable properties with minimal risk.
- Get help when needed. In addition to a professional real estate agent who can help you with your real estate transactions, you may also want to seek the assistance of a financial adviser who can aid you in making wise investment decisions.
- Don’t be fooled by television. There are so many programs on television today that make buying, selling, and flipping houses look like its so simple, anyone can do it. But what you don’t see are the behind-the-scenes truths, the years of experience, the weight of the failures, and the hardships in the lessons learned by the actors you see on television. It’s not as easy as it looks.
- Choose the right property. You may consider a duplex, triplex, or four-plex as your first financial investment into real estate. By choosing a property with multiple dwellings, you’re not putting all your eggs into one basket, or trusting your entire investment into one renter. It creates a revenue stream from more than one source, so if one unit becomes vacant, you’re still gaining income from the remaining tenants. You also have the option to live on site in one unit while renting the others. Not only may this be wise in terms of your return on investment, but it also provides you a platform from which to oversee your investment. By living on the property, you can consider it on-the-job training towards your future endeavors.
Real estate is tricky business. Investing in real estate is risky. But if you do your homework, prepare in advance, and make wise decisions, investing in real estate can also be extremely profitable and rewarding. Know your risks and weigh your options, and treat your transactions like a business.
We would love to help you along the road to real estate investing. Give us a call today at 951-515-8931.