New to real estate investing? Or have you been playing the game for awhile now? Either way, it’s never a bad idea to regroup every now and then to re-identify just why you wanted to get into the game itself in the first place!
Investing in real estate has many “moving parts,” if you will. It’s not just about price or location or rentability. It’s less about granite countertops and more about cash flow. After all, most people don’t set out to buy a new family car and come home with a front loader! The following six steps are sound advice for anyone interested in real estate investment, new or seasoned. After all, a little reminder never hurt anyone…
Step 1: Determine Your Needs
Your needs aren’t your neighbors, your brother’s or your spouse’s. They’re your and yours alone. Before you being investigating potential investment properties, you’ll want to be clear on exactly what your needs are. How many properties do you wish to hold? Must the all cash flow positive? Where are you willing to own property? Will you own out-of-state property? What is your budget for acquisition and monthly/annual maintenance per property? Can you afford to hold a property in a down market?
As you go through this tick list, it’s likely you’ll realize some other questions are out there that need answering before you start your shopping.
Step 2: Work With a Real Estate Professional Specializing in Investment Buyers
I simply can’t stress this enough. Working with a real estate professional who specializes in investment property buyers brings a much-needed skill set to the table. They understand that there’s a delicate balance between all of the elements in an investment or rental property purchase: finances, aesthetics, geography, holding period, current portfolio holdings, historical rental data, walkability, rentability, vacancy rates, available buyer liquidity…the list goes on. Not only that, but there’s a high likelihood that the professional just might be an investor themselves and constantly on the lookout for property that fits an investor’s bill. They’ll also probably have a reliable list of complimentary professionals such as property management firms and insurance agents who can move you from the role of “involuntary landlord” into that of “real estate investor.”
Step 3: Be Ready to Walk Away
Real estate investment is a business. Nothing more, nothing less. Therefore, in every business situation, you have to be prepared to walk away from the table. If negotiations on price and seller concessions go south, if an inspection report comes back unfavorable – be ready to walk away and onward and upward. There’s another deal down the road and if there are obstacles preventing your desired property from being a simple to acquire portfolio holding, you’re probably better off looking at other options.
Step 4: Run the Numbers
Very few people just stumble into owning profitable investment property. When it comes to finding appropriate rental/income properties, there’s definitely a little math involved. You’re going to want to take into account HOA fees, insurance costs, property management fees, maintenance, property taxes…the whole shebang. Make sure that a good deal on the surface doesn’t turn into a cash flow nightmare by running the numbers first. Your real estate professional who’s experienced with investment properties can assist and sites like http://www.investorloft.com have on-board financial calculators attached to every property on their site so you can run the numbers right then and there.
Step 5: Understand your Financial Situation
How much are you prepared to spend? What’s the potential vacancy rate? Will the rent-to-purchase price ratio make sense if property prices decrease? Can your liquidity support another holding in your portfolio? All questions you’ll want to answer.
Step 6: Property Management – Your Key to Living (instead of landlording)
While there do exist the certain few who truly enjoy and revel in the task of being a landlord (can I get a show of hands?), most real estate investors do not. If you’re going to be in the real estate investment game and be a long-term player, a quality property manager can mean the difference between living and landlording full-time. Interview several, ask for references. The assistance a property manager can give you – when you choose the right one – can mean lower vacancy rates, better tenants and on occasion, a nice tax write-off for professional services (ask your CPA).