Investing in real estate may sound like a great idea (see my article on the topic), but the amount of detail and the number of steps involved can be intimidating, even for the most experienced investor. This is why I’ve decided to share some insights and strategies that I have learned about over the years to help others succeed and avoid the common mistakes that people make when they begin to invest in real estate.
One of the first and most important steps to take when considering whether or not to become a real estate investor is to ask yourself a few serious questions, such as:
- Am I prepared to make a 15 percent to 20 percent down payment? In most cases, the purchase of an investment property requires a 15 percent to 20 percent down payment.
- Will I be able to meet the financial demand of potentially having to cover another mortgage payment? Renters don’t pay sometimes. Allocating for vacancy rates is an essential strategy for success.
- Is my job or career stable and secure? For most people, investing in real estate doesn’t become a full-time job until they have successfully purchased and managed numerous rental properties.
Even if you answered “no” to all these questions, it could still be within your reach to invest in real estate. A good place to start could be a real estate investment trust (REIT). The entry point is low compared to other forms of real estate, since it basically just involves buying shares of a portfolio of properties.
One of the chief advantages to purchasing a REIT, which is similar to buying a stock or mutual fund, is that of liquidity. It’s much easier to sell shares of a REIT than a rental property.
If you answered “yes” to all of the questions above, the next step is to build a relationship with a competent and local mortgage broker. Locals have more of a vested interest in the community and will work harder to help you succeed.
Finding a dedicated and knowledgeable Realtor is another important step. A Realtor who cares about your needs will help you find the perfect home to fit your investment strategy. This will help you avoid spending countless hours searching the Internet.
Once the right property is found, a sales price negotiated, and all the rest of the pieces have come together, the process has just begun. This is when the most important question becomes the following: Do I have what it takes to effectively manage a rental property?
As I mentioned in a previous article, it takes finesse and the ability to constantly maintain a professional demeanor to be a successful property manager. Not only do tomes of laws exist pertaining to rental properties, but it also takes a specific type of personality to handle issues and deal with tenants. If you realize this isn’t in your toolbox, it could be in your best interest to hire a professional management company.
For more tips about investing in real estate, information about our rates or referrals to qualified real estate professionals, please reach out to our new business team at 910.256.3031 or via our website.