More and more homeowners are thinking about renting out their homes, parts of their homes, or buying an investment property. They’ve likely heard that it’s a great way to make passive income and build generational wealth. This is very true. If you have thought about investing in real estate, it’s important that you know as much as possible before getting started. There are so many factors such as financial stability and an interest in real estate. The question is: have YOU been bitten by the real estate investment bug?
CHARACTERISTICS OF REAL ESTATE INVESTORS
A great real estate investor should have most of these characteristics before getting started.
- Financial Stability:
Individuals with a stable financial situation, including a reliable source of income and a good credit score, are well-suited for investment property ownership. If this is you, congratulations. - Cash Reserves:
It’s important you have sufficient cash reserves. You will need this for down payments, property maintenance, mortgage payments even when property is vacant, and other unexpected expenses. This is essential for property investment. - Long-Term Investment:
You should plan to hold the property for an extended period, usually five years or more. This will likely benefit you with solid gains in real estate appreciation and rental income. - Knowledge of Real Estate Market:
You should have a good understanding of the local real estate market, including trends, property values, and rental demand. Our Northern Virginia Market Update for October 2023 gives you an example. This type of information is crucial to your success. - Risk Tolerance:
Real estate investments carry some level of risk. You should be comfortable with potential market fluctuations and property management challenges. This includes a lower than normal demand for rental homes and tenants who are delinquent in making payments. - Property Management Skills or Support:
You should decide if you will be a landlord or pass the responsibilities on to a property manager. Those who are willing and capable of managing the property themselves or have access to professional property management services are well-positioned. - Interest in Real Estate:
It’s also important you have a genuine interest in real estate and a willingness to learn about the industry. This is an important attribute of an investor.
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BUILDING YOUR REAL ESTATE INVESTMENT TEAM
There is no reason to begin the journey of becoming a landlord on your own. If you’ve been bitten by the real estate investment bug, consider finding and reaching out to your trusted team members in the following areas:
- Financial Planner
They will work with you to discuss your plans and assist you in crunching to numbers to make sure you are financially prepared to become an investor. - Certified Public Accountant
These professionals will be able to guide you on how to account for the costs of investments and save as much as possible come tax time. - Real Estate Professionals
These advisors will help you find the best home to meet your budget. The old adage is “Make Profit in the Purchase”. With the right help, you can negotiate a fair price for your investments property. - Property Management Company
If you prefer to not work as a landlord full time, management companies can assist with communicating with tenants and address repair issues. These services cost on average between 8-10%.
BOTTOM LINE:
If you’re still excited at the prospects of buying an investment property, you have probably been bitten by the real estate investment bug. It’s important to note that real estate investment is not one-size-fits-all. There are different types of investments and different circumstances to consider. Before investing in an investment property, it’s advisable to consult with the right advisors. You will also want to conduct thorough research to ensure the investment aligns with your financial objectives, risk tolerance, and resources.
NOTE: This article is not to be construed as legal advice. This is the opinion of the Author and has not been vetted by a lawyer.
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