Real Estate Investing: Preparation
This weeks real estate investment blog is about preparation. When you first step in to the exciting world of chances are you haven’t run a cost/value comparison, comparative rental market value report, or anything else with a big name and the word “report” at the end. Don’t worry, we will get there! When pursuing a new investment opportunity, you can’t research enough! The more time you put into early preparation, the more ready you’ll be when a property becomes available. There are several things to consider while preparing to invest in real estate.
- Cash on Hand. How much money do you have available for the down payment? Unlike when you purchased your first home (typically with government help), investment property loans have stricter requirements, higher interest rates, and more down payment money. Typically you will be looking at a minimum of 25% for an investment property down payment. There are several ways to help generate this needed cash (ira funding, equity back loans, etc.) that can be financially beneficial depending on your current portfolio’s status. You will want to get 25% to avoid the slew of fees for only achieving 20%. Just avoid it altogether, the lender will tack on so many fees it will end up costing you virtually the same! Don’t do it!
- Finding the Right Property. Chances are if this is your first investment property, you will be stretching your budget to buy the property. We all started there and you should be proud to be able to invest! When you start looking for the perfect property, keep in mind your own budget. The property needs to work within the confines of your budget and expense funds. DON’T OVERSTRETCH. You will be able to buy additional properties in the future, don’t break your back on the first one! Careful preparation, cash down, and an affordable payment will make the property work for you! Our job is finding the right property. Don’t rush it.
- Cost of Ownership. After the inspection comes back, and the property is in the most pristine condition of any recorded history, it will still have issues! Its a guarantee of ownership: you will have to fix broken stuff. The good news is most repairs will fall under about 10% of the yearly rent. That includes incidentals, taxes, and tenant move-out related costs. If something bigger needs repair, you will want to ensure you have a cash reserve available for the property repairs. If the investment property passed inspection, you should be safe with just a few thousand dollars, but its best to keep your CoO expenses in mind!
- Ignore the Hype of Flipping. The time for flipping real estate is passed. Nowadays, real estate is rapidly appreciating in value and there are no legitimate flipping opportunities. When looking into real estate investing, know your going to own the property for the long term. This will change your focus points and what you’re hoping to get from the property. It will also help you commit to the long term. Real estate investing is not a get rich quick scheme, its all about long term steady growth. Ignore the TV shows, and settle in for the long term.
After finalizing the financial basics the next step will be the application! We will go over that next week! See you soon!