Buying investment property for the first time is a huge decision. If you are seriously considering it, there are things you need to do and check out before you make the jump. Knowing if you are really ready is your first question; this article should help answer that for you.
Real estate investing is not a way to get rich quick, you do not have to be rich to start investing in real estate. You do need to know your personal finances very well and ensure that real estate investment will fit into your life and your investment portfolio.
Having a plan in place will reduce your risk. One of the biggest reasons investors lose money, no matter if it is real estate, stocks, bonds, etc., is lack of a plan. A plan gets you from point A to point B.
Choosing the right type of property depends on your personal situation and interests. Real estate offers many different niches and options; flipping homes, single-family rentals, or just investing money in other investors. After finding your niche, you then have to choose what type of property you want to buy. You want to research what will offer the highest ROI.
Know what your expenses of investing will be. It is a common mistake to underestimate your expenses. The typical expenses are not what will derail you, it’s the unexpected expenses like utilities from vacancies, deposits, legal fees, accounting, evictions, office supplies, fuel, and capital improvements that are the most prevalent. The rule of thumb is the 50% rule; over time, the expenses will cost 50% of the income.
Can you be your own bookkeeper? If you are not good at accounting/bookkeeping, you may need to budget for a part time bookkeeper.
Lastly, do you have an exit strategy? This comes back to having a plan. Knowing where you are going and how it will end. Will you pass down your investments to your children or will you sell out? There are other options, of course, but you always need to have an exit strategy.
Questioning everything about why, what, and how will help you determine if you are really ready to invest in real estate. This article just touches the basics to get you thinking. There will be a series of articles about investment property purchasing, from knowing if you are ready to pick the right property, to closing to your first tenant.