While it’s easy to see why real estate investment is such a popular source of passive income, it should also be understood that not every investment opportunity represents a slam dunk. So, if you’re preparing to make your freshman foray into the real estate game, it’s imperative that you equip yourself with the proper knowledge and avoid a number of rookie mistakes. Taking the following factors into account before diving into real estate investment can be a boon to your long-term success.
How Much Will A Property Cost To Insure And Manage?
Rental property investors, in particular, will need to carefully consider how much a property will cost to insure and manage. For example, since homeowners insurance can’t be applied to rental properties, investors will need to seek out dependable landlord insurance policies. (Additionally, all tenants should strongly be encouraged to invest in individual renters policies.)
Property management costs should also factor into your thinking. While a small single-family property may require very little in the way of regular management, a sprawling multi-family property is likely to require consistent onsite management. By the same token, you’ll need to take maintenance costs into account. For smaller properties, you may be able to handle the bulk of the maintenance on your own, but most apartment buildings and condo complexes need full-time maintenance personnel. As such, the cost of hiring maintenance professionals – and possibly a property manager – should play a role in your decision making.
How Much Work Does A Property Need Done?
The amount of work a property needs done is among the most important things first-time investors should consider. While most properties need small to moderate repairs and/or renovations, properties that require substantial amounts of work should be approached with caution. This is particularly true for people who have little to no real estate experience.
Although fixer-uppers can sometimes be sound investments, they generally don’t make good first investments. If you’ve never dealt with a property of this type before, the various contracting costs, incidental expenses and headaches associated with getting a fixer-upper in livable condition are liable to drive you up the wall. Conversely, once you’ve gained experience repairing and renovating properties that don’t require quite as much work, you may find yourself better equipped to tackle a fixer-upper.
Where Is The Property Located?
As far as many real estate investors are concerned, location is the single most important thing about a property. The more desirable the location, the more a property’s liable to be worth – and the more rent you’ll be able to charge. So, before making an offer on a property, take some time to research its location.
When conducting your research, take care to pay special attention to property values, rental rates, crime rates, projected growth and the local job market. Depending on your findings, you may ultimately find that a certain investment isn’t worth making, even if there are no notable problems with the property itself.
What Type Of Investment Would You Like To Make?
Considering how pricey investing in real estate can be, many potential investors simply lack the necessary capital. However, this doesn’t necessarily mean they should give up on real estate. Rather, they should consider real estate crowdfunding pros and cons.
Real estate crowdfunding enables multiple investors to pool their resources and invest in a wide array of properties. However, while this represents less of an individual financial risk, you won’t have the same level of control you would if you were the sole investor. To better determine whether or not the crowdfunding route is right for you, schedule a consultation with a real estate investment company.
There’s little wonder as to why passive income seekers flock to real estate investment. In addition to requiring relatively little work in comparison to other passive income sources, real estate investments have the power to generate a substantial amount of capital within a fairly short span of time. Of course, this isn’t to say that success is guaranteed for every real estate investor. In fact, going into the real estate game without doing your homework is liable to result in significant losses. So, before having your first go at real estate investment, carefully consider the factors discussed above.