If you are a new real estate investor who has thought about investing in real estate but had a nagging feeling that you are sure the market will crash once you enter and you will lose all your money; guess what, you’re not alone.
Fear grips every new investor; and no one successfully investing in real estate today would say otherwise. It’s common for potential investors to miss out on incredible opportunities for no reason other than an overwhelming sense of fear.
Okay, so let’s tackle some of the most common fears and see if we can help you be less anxious, and maybe take the plunge into real estate investing after all.
negative cash flow
Hey, the idea behind investing in rental properties is to make enough money to cover operating expenses and loan payment with some money left over to deposit in the bank. Having to feed a property is not enough; no investor wants to feed a rental property out of pocket.
Believe it or not, this fear may be the easiest to deal with because it’s simple: just run the numbers before you buy. Obtain the property’s income and operating expenses for the last twelve months, calculate the mortgage payment, and enter the results into a spreadsheet or real estate investment software program to determine cash flow. If cash flow is negative, so be it; otherwise, dispel the worry and move on.
Just be sure to use realistic rents, a vacancy rate (even if the owner claims full occupancy), operating expenses (don’t forget replacement reserves), and a loan payment to calculate your annual cash flow.
Also, never walk away simply because the property indicates a negative cash flow. Dig a little deeper and look at ways to manage cash flow. Many properties with rental income simply go negative due to poor property management; you may have the opportunity to increase rents and reduce operating expenses. Who knows, you might even discover a real opportunity that the current owner may have overlooked.
This is not the right time
Yes, for any number of national or international events, potential investors often feel that it would be advantageous to wait for better times before making a real estate investment.
But real estate investing has little to do with the economic climate at the time of purchase. First of all, consider the long term. Economic downturns come and go, but how will investment property affect your future rate of return? That’s what counts.
If it helps, keep in mind that, unlike the fluctuating stock market, real estate has a deep history of constant appreciation. Perhaps not overnight, and not without the occasional bump, but historically, real estate values rise over time.
lose your money
Of course, you wouldn’t want to tap into your savings to make perhaps the largest financial investment of your life only to end up losing it all.
The key, however, is study and research. Learn about the property you want to invest in and the area where you plan to invest. Look for sources of information such as seminars, college courses, real estate software, and real estate investing books. Get an expert property appraisal from an investment real estate professional or property appraiser. There is always some risk involved when investing in real estate, but developing an informed plan will negate most of your uncertainties.
Management and tenant issues
It’s okay, it’s true. No one wants the headache of repairing a refrigerator or complaining about an unruly tenant; And it’s understandable why that concern keeps many people from becoming real estate investors. But life is always a series of trade-offs, and an occasional migraine is usually worth trading for potential future wealth.
However, it is also true that over time you will learn to deal with and manage most problems while sleeping. If not, you can always hire the services of a reliable property management company to take care of it for you. For around ten percent of rental income, a property manager will do all the dirty work; The upside is that it will free you from the time and stress of dealing with tenants and repairs while putting issues like back rent in the hands of experts.
Lack of real estate experience
Just because you haven’t bought an investment property yet shouldn’t stop you from investing in real estate. In this case, locate a local broker who specializes in investment properties to help you.
When it comes time to buy a rental income property, you may be surprised to discover that it’s not as insidious as it seems, and tapping into the mind of an expert will significantly increase your comfort level. But the key word here is investment property specialist. An agent who only sells houses will not benefit you; you want a real estate professional with real investment property experience.
It’s time to start
Granted, the hardest part of jumping into real estate investing is getting started. We are great at making excuses, and there are always plenty of reasons to put off starting something new.
Yes, we want to be cautious. It’s best to put on the brakes and approach real estate with the proper knowledge. So if you’re struggling, here’s my suggestion: learn, research, and plan. Educate yourself on real estate investing, learn about real estate in general and more specifically about your specific real estate market, and develop a roadmap for the financial security you hope to achieve.
Then choose that first rental property, make a purchase, and then take over as manager. If you’ve stuck to your investment plan goals, run the numbers, done your due diligence properly, and worked diligently to increase income and control expenses, you’ll be able to move on to bigger and better properties over time.