Maybe you remember renting and how seemingly rich your landlords were—especially the one with a dozen properties. Maybe you’ve heard that you can’t go wrong with real-estate (which isn’t true, unfortunately). Maybe you want to boost your income so that you can retire before you’re 60. Whatever your inspiration is for getting into real estate, there are a few things you need to consider before you get started lest you turn your dream into a bankruptcy.
- Get Your Finances Straight
It’s hard to know if you can afford an investment property without doing the math. If you can’t save at least 20-25% of your salary for a down payment, you aren’t financially secure. You’ll need emergency savings even after the property is purchased to replace big ticket items like water heaters, furnaces, and more.
- Be Patient and Dedicated
You can’t buy the first property that pops up down the street. Know your budget, your desired rent (and whether it fits with the average rent for your neighborhood and property), and your property type. Not everyone has the resources to purchase an upscale apartment as their first property, but just because there is a fixer-upper for sale for 50% less than you would normally pay, that doesn’t mean you should jump either. Big costs like plumbing and electrical work can sink any profit or even lead to bankruptcy.
Get to know other landlords and local investors. What kind of pitfalls did they run into? What were a few things they would do differently? What decisions benefited them the best? An investor told me his best decision was renting out renting a duplex to a tenant while living in the other half. Talk to tenants at a modern apartment home in your desired neighborhood. What do they look for in a rental? What qualities turn them off a property?
- Think About the Market
Whenever you decide to enter the real estate investment scene, it may be the right time for you, but the wrong time for value. Real estate appreciation is hard to predict, and it can be riskier than other forms of investing. Make sure to do your research and talk to professionals in the field.