Wait – Dont Jump Into Real Estate Just Yet Do It Right or Dont Bother
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So you’ve decided it’s time to make a change in your life. You’ve decided to change the financial future of your family and yourself for generations to come. With so many options for investing out there in the marketplace, real estate continues to be at the forefront for people who are truly serious and dedicated to building a long-term wealth strategy that can be repeated over and again.
But if this is your first venture into the real estate investing arena, what obstacles do you need to recognize to ensure your investing business hits the ground running? To take some of the guesswork out of your investing journey, I’ve put together four key tips that you can use to start moving at full speed. You don t want to spin your wheels on the real estate treadmill for too long the scenery and fresh air out on the road is a far better option.
Your Key Considerations Before Taking The Plunge:
You re Becoming A Landlord
Before you take the plunge into the deep end of real estate investing, make sure to blow up your water wings. Analogies aside, there are two critical questions you need to ask yourself before becoming a landlord:
#1 What do you want real estate investing to provide you over the long term? If it’s fast money or passive investment, in most cases real estate won’t be for you. If you want long-term sustainable wealth and income, then it is a perfect option.
#2 Am I patient enough to do the homework that it takes to buy a quality property (an investor)? Or am I an emotional buyer that gets caught up in the hype of a market (a speculator)?
The Right Time To Buy
The right time to buy isn’t necessarily when the newspaper headlines say so. The right time to get into the rental property market is determined by studying specific markets (i.e. city or town) to determine if it is creating long-term jobs and attracting people to migrate to the area. A way to do this would be to keep an eye out on for-sale properties through realtor companies (like Prestige Realty of Florida) of the cities and towns you’re interested in. Once that has been figured out, an investor then needs to look at whether or not the area is overheated by an outside Key Influencer. If it is, it will be over-valued and therefore more difficult to be a sustainable investment environment.
Strategic investors understand that all markets are cyclical and that to insulate themselves from the inevitable ups and downs of a market, buying property for cash flow is always the number one strategy in a long-term real estate investment strategy. All markets being cyclical, they are driven by two sets of stimulus:
Key Drivers: These are the economic underpinnings of a market GDP growth, job growth, population growth are some of the key structural components that support the long-term cycle of a real estate market.
Key Influencers: These are the stimuli that push a market to overshoot the underlying economics. These can include record-low interest rates, increased foreign investment, speculation, and Olympic-type world events. These are not direct economic actions, however, they influence the markets (good or bad).
Is This A Good Investment?
After determining whether the market is poised to grow in demand (job and population growth), the next question MUST be: Can I find a property that can be rented out for more money than it is going to cost me to own/operate?
Investment real estate is a business that is driven by revenues (rents) and expenses (including, but not limited to, mortgage payment). If you can t find a property that pays you positive cash flow every year then it is no longer an investment, it becomes a purely speculative purchase (which is NOT recommended). If you re not ready to dive into real estate investments at the start, then consider a real estate internship. Working with a professional realtor could help you grasp the nuances of the market, thereby setting you up for better property investments as you gain more knowledge.
Many beginner investors overlook the fact that real estate investing is a business and with all businesses, there must be an operations budget in place to cover inevitable expenses. Here is a list you can use to start building a budget (items with a * are costs that won t occur every month but MUST be budgeted for):
Heat
Electricity
Water/Sewer
Property Taxes
Condo/Strata Fee
Insurance
Mortgage Payments
*Property Management
*Vacancy Allowance
*Repairs & Maintenance
Once you ve determined the market rent you will achieve and subtract the monthly operations budget from this, then you can understand whether the property has the potential to be sustainable or not. Always remember cash flow is king.
An Expert Team
In real estate, it is incredibly important to have a team of professionals on your side, whether you are buying one property or many, and regardless of whether you are thinking about developing real estate in the future, industry professionals like Lincoln Frost and others can be beneficial if this is something you decide to pursue. Seeking professional help also important even when you decide to sell properties. After all, you would need to have someone to advise you on how to advertise your property. Moreover, you would need to know if you would require to opt for digital signage solutions (which happen to be provided by loop.tv and its likes) to market your property. Furthermore, it is good insurance for you for the professionals you work with to have real estate in their portfolio as well; that way you’ll know they are paying very close attention to the latest rule and tax changes that are constantly occurring. Here are four pillars for your real estate investing team:Furthermore, it is good insurance for you for the professionals you work with to have real estate in their portfolio as well; that way you’ll know they are paying very close attention to the latest rule and tax changes that are constantly occurring. Here are four pillars to your real estate investing team:
Investment-oriented lawyer This is one of the most critical team members. Always use a lawyer that is not the same as the seller or the developer.
Accountant They will help determine whether you should buy in your personal name or under another structure. There is no black and white answer to this question it all depends on each individual s personal, family and corporate situation.
Investment-oriented mortgage broker It is more difficult to get financing on investment properties than it has been in decades. What has worked in the past no longer works in the present. Having a specific investment real estate mortgage broker on your side will make a big difference in your business (rather than someone who deals mainly in homeowner purchases).
Like-minded fellow investors When there are questions to be asked or pathways to be determined, you will have someone who has already gone out and done it able to give you their real life, on-the-street insights. This will help keep mistakes to a minimum and success to a maximum.
Take these initial tips and considerations to heart, be honest with yourself before you begin your real estate investing business. The best way to avoid mistakes is to learn from those who have already done the dirty work. Be sure to check out past posts on this blog for many others tips, strategies, shortcuts and actions steps. You can use right away to give you an advantage as you begin building your portfolio.
began his investing career in 1985 with a house purchased in Mission, BC. He is Senior Analyst at The Real Estate Investment Network and currently owns over 170 doors in BC and Alberta. A seven-time best-selling author, Don’s expertise and passion for teaching Canadians how to create wealth through real estate are far-reaching and have made an impact on the lives of thousands.
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