When considering including real estate as part of your investment portfolio, there are many factors that you will need to consider. It’s not just about deciding on a property to invest in, because you’ll also need to answer some questions about your investment. Not all real estate investments are the same, and not all investors are 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 mentally prepared and financially established. Remember: If your property is between tenants, you still have loan payments to make and other obligations to meet. You may want to check with your investment advisor about your current portfolio and how much you can afford to carry until you start to see a real return on investment.
Next, establish a plan. It will help you outline your strategy and define for you what your goal is in terms of investment. Your plan will guide you should you want to make changes along the way. Your plan can also help you understand all the expenses you’ll incur down the road, including utility bills, fees from your experts, times when no one is renting from you, and maintenance and repair costs.
Next, decide what type of property you want to invest in. You could invest in rental properties, or you could buy houses with the intention of fixing them up and reselling them, a process called flipping. Then there are commercial properties that you could invest in, such as commercial buildings or multi-unit residential units.
You will definitely need to have a solid foundation to finance the properties you choose. If you have the cash to make your initial investment, you can do much more by buying houses quickly and saving on the mortgage amount every month. Remember that although interest rates are low now, there is no guarantee against future increases, so if you choose to finance, be sure to 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. Many vacancies near the house you choose does not bode well for you to be successful in finding tenants.
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’re not going to be living on-site, or don’t feel confident doing the property management part of it yourself, hire a professional property manager or sign a contract with a PM company.
When you’re ready to buy, it may help to find a real estate agent who specializes in investment property. They will be more knowledgeable about how to find you properties that suit your unique needs.
Before you buy, be sure to do a full home inspection so that minor repairs can be made and major repairs can be avoided. Fixing minor repairs can mean you can add value to the rental.
Remember that being a real estate investor, particularly if you go the owner route, is a business. You will need to keep financial records, comply with regulations, and file legal documents. It will be necessary to have a team around you that can help you with these tasks.
Finally, what is your exit plan? Although you may be in real estate for the long term, eventually you need to sell the property. If the economy goes down again, you won’t be able to sell it easily, or if you do, it may even be at a loss. Having a plan of what you will do for each property will help alleviate the stress of a down economy.