As a Real Estate Agent, I am often asked questions about investment properties. Some see the complete overhaul of a complete dumpster fire in under an hour on television and think, "Hmmm, I can do that!" My response…”Can you??” Not to be Debbie Downer or anything, but renovating and owning investment properties entails a little more work than you think, and I guarantee you won’t be done in an hour! Here are some things to consider when thinking of getting into the world of investing in real estate.
What Type of Real Estate Investing Do You Want to Pursue?
First things first, how do you want to invest? Here are a couple of the most commonly pursued investment types:
Rental properties are assets that you hold intending to rent to tenants for a monthly payment. Things to consider when pursuing a property with the intent to rent;
Consider the cost of purchasing the property. It is very important to make a smart buy with a rental asset. Will the potential rental income (the amount that rentals of like/kind quality to your property earn) in a specific area be enough to both cover any mortgage you will have to pay on the home and still provide you with a beneficial profit margin? Something to consider is starting off with a low-cost asset to get your feet wet. Keeping costs low affords you the ability to gain a larger profit.
Property Management. How will you plan on managing any maintenance, repairs, and handling of tenants? Property owners frequently outsource this task to a Property Management Company or Real Estate Professional who specializes in this particular area. Property managers usually have a team of repairmen that they work with that can quickly address any maintenance issues that arise on the property. A huge benefit to using a property manager is that you do not have to deal directly with clients. Any issues or concerns that come about are directed to the manager who in turn, will contact you and discuss how to properly address those issues.
There are also those brave souls who choose to manage their property themselves. God bless you!! Choosing this route will save you the expense of paying a property manager, but keep in mind you will be responsible for EVERYTHING. You will have to advertise, take applications, verify the information to qualify a potential tenant, collect rents, arrange maintenance and repairs yourself, etc. Is the money you will save worth it? If you have the time, go for it!
Renovate and Re-Sell (Flips)
Flipping homes has become a popular source of income over the past couple of years. As is with rental properties, the cost of acquiring the property, and the location of the property is key. The goal of successfully flipping a home is purchasing a distressed property, renovating it, then selling the home for a profit. Having a Real Estate Agent who is knowledgeable of investment properties plays a big role in this type of investing. An agent can notify you of properties that fit your criteria when they hit the market and also run comparables to help you assess the potential after-repair value (the price that the home will potentially sell for once repairs/updates are made). Flipping can be a risky business, but if it is done properly, can be profitable. This type of investing is very popular with people who don’t want to hold on to a property and deal with renting.
Figuring out how you’re going to pay for your investment property is another thing to consider. Luckily, you have a couple of options! Cash is king baby!! If you are fortunate to have access to cash on hand, you have some buying power my friend. How much cash do you have access to? Is it enough to cover acquisition and renovation?
Financing, or acquiring a loan, for your investment is also possible. There are a couple of lending products out there for you to investigate to assess which is right for you and what you want to do. My advice is to become bosom buddies with the loan officer at your personal bank. That lender will be able to tell you about the loans that they have and help you figure out which is best for you and your business. I would also suggest researching some of the local community banks to find out what type of products they have available as well. You can never have too many options!
Get Out There and DO IT!
Once you’ve got all your ducks in a row, it's time to get out there and pursue your dream! My final two cents on this topic is for you to find a local Real Estate Agent that you know or were referred to for a consultation. I know….it's a shameless plug, but it’s the truth! Aligning with an agent and sharing your plans/goals for your new venture is a great relationship to have. That agent will be able to provide you with valuable knowledge and insight to help you be successful.
*Email or call me with any questions you have. Also, please feel free to drop me a line on anything else you would like me to cover or how/if this has helped you!