So you have just saved enough money and you are sure that real estate is calling out to you. Do you know what it is that you are getting into? Do you know what you are supposed to do and what you should not do?
Do — plan your financial goals.
Before you buy that first property, or do your first analysis, determine what you expect from your investments. What are your financial goals? We often discuss the “time vs. money” concept: The more you have of one, the less you need of the other to reach your financial goals. This means that you shouldn’t shy away from taking the time to understand your goals and make sure each investment is a step toward achieving them. If you are unsure exactly how to create financial goals, meeting with a financial advisor is an excellent first step.
Don’t — spend a fortune on books, tapes and seminars, then just put all that information on a shelf.
You absolutely do need to learn some basics before venturing into investing. So, be sure to do some studying, but don’t let “buying and collecting” information become your endgame. Again, having goals in mind will make the process much more straightforward. It’s easy to get so tied up in the “research” phase that you never actually take action. Instead, write down specific questions you want answered or goals you want to meet before delving into the latest book/seminar/etc.
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When it comes to paying for the property you need to consider making one big payment. You can try your hand in fixing anything that needs to be repaired in the house. This will ensure you avoid the challenges associated with having the landlord take over.
Plan on a big down payment. Mortgage insurance isn’t available for investment properties, so a 20 percent down payment is required to get traditional financing. And putting even more down can result in a better rate. Also, loan costs are generally higher for investment properties.
Enjoy being handy and fixing things. Opting for the landlord route brings with it lots of challenges, including making repairs. Be sure to have enough savings on hand to handle any unexpected repairs in the short term – before the rent checks start rolling in
Income varies. Tenants come and go, and it may take a while to rent out a just-vacated unit – especially if it needs substantial repairs or rehabbing, reducing your income. But you’ll still have to pay the bills, including mortgage, property taxes and insurance.
Do not buy a piece of property blindly. You should first of all ensure that you do your own research before making a move. You should also ensure that you have a calculator.
Buying blind. Doing your homework on your first property is a long and arduous process, but it is a critical and unavoidable step if you plan on making money off of your investment.
Buying without a calculator. Miscalculating your net operating income can stick you with a property that makes you lose not gain capital. Connect with reliable contractors and professionals to get accurate estimates on rehabilitation costs, and factor in “rainy day” funds for those unforeseeable costs that are bound to turn up in the process.