New to real estate investing? Or have you been playing the game for a while now? Either way, it’s never a bad idea to regroup once in a while to re-identify why you wanted to get into the game in the first place.
Investing in real estate has many “moving parts,” so to speak. It is not just a question of price, location or profitability. It is less granite counter tops than cash flow. After all, most people have no plans to buy a new family car and go home with a front loader! The following six steps are good tips for anyone interested in new or experienced real estate investing. After all, a little reminder never hurts anyone …
Step 1: determine your needs
Your needs are not those of your neighbors, your brother, or your spouse. They are yours and yours alone. Before researching possible investment properties, you will want to be clear about your needs. How many properties do you want to have? Should the cash flow be positive? Where are you ready to own a property? Will you own an out-of-state property? What is your monthly / annual acquisition and maintenance budget for each property? Can you afford to buy a property in a declining market?
As you review this list, you will probably notice that there are more questions to ask before you start shopping.
Step 2: work with a real estate professional specializing in investment buyers
I just can’t stress this enough. Working with a real estate professional specializing in investment property buyers brings a much-needed skill set. They understand that there is a delicate balance between all the elements of an investment or purchase of rental properties: finance, aesthetics, geography, holding period, current portfolio, historical rental data, merchantability, profitability, vacant rate, liquidity available to the buyer … the list goes on. Not only that, but it is highly likely that the professional is an investor himself and is constantly looking for a property that matches an investor’s bill. They also likely have a reliable list of complementary professionals, such as property management companies and insurance agents, who can take you from the role of “involuntary owner” to that of “real estate investor.”
Step 3: get ready to go
Real estate investment is a business. No more no less. Therefore, in every business situation, you must be ready to walk away from the table. If vendor price negotiations and concessions go south, if an inspection report turns out to be unfavorable, be prepared to walk away and continue and climb. There is another deal on the way, and if there are obstacles preventing your desired property from being a mere portfolio acquisition, you may be better off looking for other options.
Step 4: run the numbers
Very few people face possession of profitable investment property. When it comes to finding suitable rental / income properties, there is definitely a little math involved. You’ll need to consider HOA fees, insurance fees, property management fees, maintenance, property taxes … the whole deal. Make sure that a good surface business doesn’t turn into a cash nightmare by running the numbers first. Your real estate professional who has experience with investment properties can help you and sites like http://www.investorloft.com have financial calculators built into each property on your site so you can run them. numbers immediately.
Step 5: Understand your financial situation
How much are you willing to spend? What is the potential vacancy rate? Will the relationship between rent and buy make sense if property prices drop? Can your liquidity support another stake in your portfolio? All the questions you want to answer.
Step 6: Property management: your key to living (instead of the owner)
While there are some weird people who really appreciate and delight in homeownership (can I get a hand?), Most real estate investors don’t. If you want to be in the real estate investment game and be a long-term player, a quality property manager can make the difference between living and owning a home full time. Interview several, ask for references. The help that a property manager can give you, when you choose the right one, can mean lower vacancy rates, better tenants, and sometimes good cancellation of professional services (ask your CPA).