I know the market is crazy right now but lots of people are considering investing in Real Estate. I am partial to acquiring rental properties or “buy and hold” strategies. You get income monthly and you get the benefit of market appreciation. It’s not for everyone. It does require a bit of cash and you do have to consider whether or not you want to be a landlord (and ALL the things that come with that) but I love it. I love helping people with a place to live and I love the benefits of owning them. I will tell you that your first one is the hardest so let’s spend a minute discussing a few steps to get ready for that first one.
1) Save cash.
You can’t have too much. You will likely need 20% down. And closing costs. And a back up fund for WHEN (not if) something breaks. And money for that month or two between renters (bank still wants to be paid). Some folks will use equity in their primary residence to fund the acquisition of a rental (HELOC or refi). Not a bad idea BUT make sure you understand what you are doing. You are leveraging your HOME to buy an investment. It does not work for everyone, emotionally.
2) Learn about cap rates and study up a bit on investing in general so you can decide if it is a true “investment” or just something you want to have.
Both are ok. Just know which one you bought. Investments make money for your bottom line. Hobbies are fun and make you feel good. Also, know your target market. I will only buy rentals close to my home so it is easier for me to manage. The thought of owning a property in another state raises my blood pressure. Some people love it though. Just know which one you are. Some people want homes that attract a certain demographic. Some want high turnover so they can raise rents often. Some want little to no turnover because they want a dose of security with their risk. Up to you. Just think through it. Talk to other landlords and be honest with yourself!
3) Be patient.
Very patient in this market. Ask around. Talk to neighbors. Knock on doors. Be ready to jump when the opportunity presents itself. Not every home available is a good investment. Many good investments are not “available” right now. Be open to a diamond in the rough if you have any time or ability to fix it up. Don’t try to time the market based on some feeling or prediction of an impending correction. The right time to buy an investment is when you are ready to buy an investment. At the same time, don’t get in a hurry.
4) Consider your exit strategy when you are making the purchase.
Some folks only buy “starter homes” as they think there will “always be a market for them”. Some folks want to keep properties where the rent is below a certain dollar amount or above it. Some folks only buy homes with 2 car garages. Some only buy in certain school districts. All of these preferences are due to their perception of ease of keeping tenants and ease of divesting if you had to. Along with this, be careful about homes with “death nails”–giant power lines overhead, flood zones, etc. They can be much harder to sell in a down market (which is inevitably when you will have to sell if you ever have to, as opposed to choosing to).
5) Build your list of professionals.
Get to know an attorney, a plumber, an electrician, and HVAC company, a yard person, a mover, a cleaner, a handyman, a painter, a roofer, a flooring provider/installer. Also, decide if you are going to manage it yourself or hire a management company. This can be a game changer. For some, the thought of paying the fee is absurd. For others, they want to invest and forget about it. Both are great strategies IF you are honest with yourself and do your diligence. If you already work 60+ hours a week, it is going to be very hard for you to manage a remodel on a rental property.
Rental income can be awesome. It can also present more challenges than its worth. You have to decide. For some, putting that same cash in the stock market makes more sense. For still others, doing a little of both makes sense. The name of the game is to be honest with yourself. Accentuate your strengths. Don’t put a burden on yourself that makes you miserable. No one like a grumpy landlord!!
If you want to sit down and talk through some of these, give me a shout. I’ll buy you a cup of coffee.