Real estate is one of the best investments for those looking to build long term wealth. It offers a reliable ROI over time, and there are an abundant number of choices for funding real estate investments, as the investment has a real and tangible value from the beginning.
If you are considering an investment in real estate, determining whether you are financing ready to do so may be a challenge. Keep reading for some signs that you are ready to invest in real estate.
1. You have substantial savings
Of course the purpose of an investment property is to make money, but as you have likely already figured out: it usually takes spending money to make money. To be in the best position for buying an investment property, be sure that you have a substantial savings to fund potential emergencies or lapses between tenants.
In order to benefit from the property without it becoming a financial catastrophe, buy the property from a position of financial strength and not desperation. If you have an emergency fund that will cover 3 to 6 months of expenses and can continue funding your retirement accounts after purchasing the property, you are probably in a good position to invest.
2. You have the time to manage another property
Managing an investment property will take time. The amount of time it takes will vary significantly depending on the initial attention it needs to be ready for use, the type of rental it will be, and how much of the work you are doing yourself.
If you buy a fixer upper, either with plans to flip it or to renovate it for use as a rental property, consider how much time you will need to dedicate to the renovation process. After estimating the time it will take, add another 50%. Renovations tend to take more time and energy than people estimate. While this is often well worth the time and effort, make sure you have the margin in your life to manage the project, whether that means actually doing the work or keeping up with contractors who are doing it.
For a property that will be used as a rental, there are different methods that will require different amounts of time. Long term leases may end up being a lower time commitment; if you have a good tenant, it will be mostly passive income after the initial investment of time to screen tenants and sign a lease. Short term rentals will take a bit more time, as they need to be regularly cleaned, staged, and rented.
3. You have the stomach for risk
All investments involve a level of risk; this is where the potential for return comes from. Before getting into real estate investing, be sure that you have the right temperament for it. In other words, make sure you have the proper tolerance for risk.
To mitigate the risk of the investment, be well educated about how much you can expect to earn from a property in the area you are considering, taking your time to research various markets. Whatever financial risk you take one, make sure you are both mentally and financially prepared for the worst case scenario (even though this is an unlikely outcome). Most real estate investors learn through small blunders along the way and ultimately find it to be a lucrative retirement strategy or passive income stream. No investment is a guarantee, but with the right knowledge and safety net in place you can take part in the exciting real estate investing game.
If any of these signs apply to you and you would like to see if you are ready to invest in real estate, give me a call today! I’d love to chat with you about the best way to invest in real estate right now. And for more information on real estate purchases, investing and mortgages, check out my latest posts below:
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