Investing in the real estate has been known to many as a stepping stone towards a wealthy life. It is no secret that many millionaires are involved in real estate business, making some think that it is a good path to consider, however, you must be armed with enough skills and knowledge to successfully delve into it. Here are ten things to consider before you dive into the real estate world.
Getting into Deep Debt
Investing on a rental property does not come cheap. While well seasoned investors are fine getting into debt for a while to get a big property, you as a beginner should consider this. An average person who lives by with an average monthly income might have a hard time getting out of debt caused by the property. Also, consider your long time financial plans. If your kids will soon go to college, or if you are paying loans an investment in a property might not be a good idea now.
Got Money for Down Payment
Large down payments are usually required to purchase a good property. Also, get ready for the grueling task of completing required documents. You need to spend more time and money. If you are unable to secure a mortgage insurance, you might have to prepare at least 20% of the price of the property as a down payment.
Ready to Get Your Hands Dirty
Being a landlord is not just about getting the rent every month, you also have to do your own house repair. Get ready to do some plumbing under the musty sink, unclog overflowing toilets and fix some fixures around the house. While you can just pick up your phone and get a professional help, you might just shed your earned money on them. Learn to do the dirty work to save money, if you can get on your knees and crawl under the sink, reconsider getting into real estate.
High Interest Rate
Borrowing money might be a good idea now to get the rental property that you had been eyeing, but do not forget to consider its interest rates. Interest rates might go higher that you expect, make sure that the monthly mortgage payment does not eat up all your monthly salary.
Too Cheap Doesn’t Mean More Money
Yes, it is tempting to buy a cheap property and turn it into rental, however, you might spend more to renovate and fix major repairs. If this is your first investment in a real estate property, think twice if you can’t do low priced renovations. It is fine to buy an average priced home with just minor repair that you can even do yourself.
See the Margins
Some big firms set goals of 5% to 7% returns of their investments, but as an average person, you have to set a higher goal. You can settle with 10% returns, but you might have to spend 1% of the annual property value for the maintenance. Also, you need to remember the insurance fee, taxes and monthly expenses for keeping the property in shape.
Low Cost Property
As said above, it is not ideal to buy a cheap home as it might have major repairs needed to be done. It is better to find a low cost home and turn it into rental. While it might also need some repairs, it won’t be as big as those in the cheap ones. You can start with a $150,000 investment in a low cost home.
Do not let your your mortgage and operating expenses eat up all your profit. It is better to do the 50-50 rule. This means that half of the monthly rent you get from your property should solely go to your operating expenses.
Choose a location near to a person’s necessity such as a school, malls, restaurants, parks and lots of amenities. Make sure that the neighborhood is safe as many would love to live in a peaceful environment. A profitable rental property is located in a place where a person can easily find his or her needs at a moment’s notice.
As a beginner, set realistic goals. The money you invested in the rental home will not yield returns in a few months. You can talk to an experienced friend if you have one to have an idea on more ways to maximize your income while keeping the home in shape at the least expense.