August 25, 2022

All investment opportunities come with common facts and falsehoods, which is why it is so important to do your research ahead of time to distinguish what the truth is for your situation.  If you desire to be independent financially, then investing in real estate can be a great place to start. This market can at times be a bit challenging for new investors which is why a good real estate agent can help you start off right in a big way.  Below we will explore some of the most common real estate facts and falsehoods to help you decipher the differences.

You Need A Lot Of Capital

Most new investors believe that you need a lot of money to start investing in real estate, but that is far from accurate. Investing is not the same as owning a property; when you invest, you should expect to get a return from the money you’ve invested, which will make it possible for you to pay back your mortgage over time.  If you want to invest in real estate, you can look for partners or private money lenders. All in all, every investment is a risk, so you should always have a plan B in place ahead of time.

Buying Beats Renting

A common falsehood in real estate investing is that you must have your own home first before investing in other real estate. This is simply not the case.  Many new investors are investing in real estate while still renting the place they currently live in. This is very common with people who rather wait to save up for their dream home by investing until they have enough capital in reserves to buy or build what they desire long term.  Many new investors own vacation rentals or condos first and see a great return while they build equity for their future projects and goals.

Fix And Flipping Equals Quick Cash

This is perhaps one of the most common falsehoods circulating in the real estate industry, where investors buy rundown houses, fix them up and sell them for a profit. Cable network programming often highlights this tactic of real estate investing.  While it’s possible to profit from flipping houses, they are far from a get-rich-quick fix as it requires a careful and calculated plan. To be successful, you must survey the property, calculate the total repair and labor costs, at end a 10-20% buffer for unexpected expense contingencies, and ensure that the amount you pay for the property is not more than 70% cost of repairs. If everything goes to plan, you stand to make about 30% profit after all your hard work is done.  You must keep in mind though that if the real estate market crashes or takes a significant hit, you don’t have to sell the property at a loss; you can hold on to it until the market recovers.  At the end of the day, you can see many examples of how real estate is not the best way to get rich quick without a lot of time and headaches.

Good Land is Rare

Most real estate agents will try to encourage new investors to buy a particular piece of land by convincing you that you’ll never come across such a plot again as land is scarce across the country and the population is increasing.  By these metrics, they argue that the price of land will continue to rise.

While it’s true land is limited throughout the country, advancements in building technology are making it much easier to maximize the use of available land out there and even if the population does increase, there will still be enough land with current death and birth rates, so there should not ever come a time when the amount of good land available will not be adequate for future needs.

Being A Landlord Is Too Difficult

It is true that owning an investment property can be a lot of work, especially if you have difficult or demanding renters. On top of that, you will have to ensure that your rental property is maintained properly, accounting is current and rent is collected in a timely manner.  Luckily, you don’t have to do all of these things alone; many new investors utilize a property management company to manage their investment property for them. Just understand that you will have to pay them a certain amount which will need to be accounted for in your bottom line but it can be well worth the cost if they take all or even most of the headaches off your plate.

To start investing in real estate, a wise new investor will make sure to research ahead of time and figure out the differences between common facts and falsehoods within real estate investing.  By taking this approach, this will help you avoid being led astray to purchase a property that is not worth the return on your investment and also help you develop your sixth sense when it comes to real estate opportunities. If you find a good real estate agent you trust, they can be a great resource especially when you are first starting out, to help you discern what is the best opportunity for you to get started when investing in real estate.

August 18, 2022

If you are the type of investor who wishes to buy a property and turn a profit on it long term, then hopefully this post will help guide you in the process.  Property investment can be beneficial to the investor in several ways including the ability to utilize the property as your main source of income or simply reduce the monthly cost of rent, maintenance, interest, etc. That said, it is not always so easy to invest in real estate.  As the property investment market gets more competitive, it is important to have a clear investment strategy. Below, we will look at some basic steps to take to help you start investing in real estate and be successful long-term.

Learn What Work for You

When you invest in a property, you should decide to either invest a certain amount of money into real estate or invest it through asset-based lending but it can be a challenge to know if you’re investing in a good deal to start. It is important to know in advance what investment strategy is right for you ahead of time before getting in over your head on a deal that may not be so easy to walk away from once you have funds or assets tied up.

Asset Based Lending

Asset-based lending is a loan or line of credit issued to someone that is secured by some form of collateral.  When you invest in a property through this method, there is still a possibility that you could lose money on the deal but it’s generally safer because you’re putting down your money to earn it back through future rent. This way, you’re not putting your money at as much risk of losing the entire lump sum you’ve invested. Overall investing in a property through asset-based lending comes with a lower risk of losing significant money long term.

Tax Advantages

Investing in an investment property can provide certain tax benefits that you can deduct including property taxes, interest, property management fees, insurance, maintenance, repairs and more. Best of all If you sell your property for more than you bought it for, the profit will not be taxed as income. Rather, it will be taxed as capital gains which are generally subject to lower tax rates than traditional income. If you invest using asset-based lending, the profit you acquire from the property is considered a capital gain which could help you save some money on taxes long term.

Decide on the Type of Investing

Understanding all of the nuanced differences between passive vs. active investing is an important part of learning how to invest in a property. Active property investments may include hands-on real estate purchases, property management as well as market knowledge that requires a great deal of financial and real estate knowledge.  If you’re not ready to purchase a property, you can still benefit from the additional income and asset value through passive investing with a lower financial barrier to entry.

How to Know if You’re Getting a Good Deal

Before you invest, you should first decide how you are going to invest, whether you decide to purchase a rental property, flip a house, contribute funds through an investment group/REIT, or simply use an online real estate investment platform. When choosing a property investment, consider as many factors that can affect your decision as you can research or think of, including calculating all potential risk and upfront costs. One important area that you’ll want to look for when you’re investing in a property is how much of a return you are getting vs. how much you initially invested in it. One simple way of achieving this is to look at the gross income to the overall cost of the property.  There is no specific amount of money required to start investing in real estate, but obviously more substantial investment amounts can lead to higher returns down the road. It is worth mentioning that different types of investment strategies have different costs, so some investments, such as flipping a property, may require you to make a large lump-sum payment upfront to secure the investment long term for the most future profit potential available.

August 12, 2022

As stocks take a dip and inflation rises, you might wonder if buying rental property is a good place to invest your money.  Seemingly, it’s easy: buy a property, rent it out at a high enough price to cover the payments and put a little extra cash in your pocket.  The goal being that while you do this, property values will increase as rental amounts continue to rise nationwide. While this may still be a great opportunity to the right investor, there are many factors to consider before moving forward with a rental property investment, from rising mortgage interest rates to finding reliable tenants. There can also often be unexpected expenses that pop up out of nowhere. Below is a list of some common questions about purchasing a rental property.

Are Rental Properties A Good Investment In Todays Market?

If you have your finances in order, especially as interest rates climb, rental properties can still be a good long-term investment.  A rental property should generate income monthly, even if it’s only a few dollars to begin with. You should do the math to make sure the property you’re considering is right for your current situation. Consulting a financial adviser or local real estate expert ahead of time is a smart decision that can save you a lot of money and headaches in the long run.

One of the most important aspects to consider is to simply ask, does the deal make financial sense? At a minimum, there should be no net carrying cost to the property. Managing a rental property can be a lot of work.  A lot can go into setting things up correctly, including purchasing insurance, HOA fees, utilities, advertising, cleaning, repairs over time, rising mortgage payments and taxes are some critical factors, to name just a few.  Some rental property owners hire management firms to take care of the property, with fees typically between 7-12% of the monthly rent collected.

As an investment, a rental property can be a slower but still more reliable source of income than flipping a home at the height of a thriving real estate market. Though home values soared in the past few years, that pace is beginning to slow.

How Much Return Should You Get?

Once you’ve crunched the numbers, and if you intend to hold the property for a number of years, even a small profit can be a valuable source of income over time.  For example, a $100 per month net profit (after everything is paid) can add up. If rents continue to rise at 3-5 percent per year, profit should continue to rise, also.  Overtime, that can add up to a pretty significant rental return which doesn’t include appreciation on top of monthly revenue.

What Kind Of Loan Should You Get?

Rental property owners can apply for mortgages like homeowners but with some noteworthy differences. First, the down payment for rental properties is usually significantly larger.  Most lenders require putting a quarter of the total down for a rental property mortgage compared to the average 6-7 percent required for homeowners in recent years.  Lenders view a rental property mortgage as riskier than a regular mortgage because in hard times a primary home will take precedence over all other investment properties.

What Are The Best Financing Options?

Ideally, if you are able to secure a property with all cash and still have funds leftover for a rainy day that is the perfect situation to be in financially. If you are going to take out even a small mortgage, most lenders will require documentation that you have more than enough reserves set aside to cover unexpected expenses.  Before you begin the application process, make sure you have a clear understanding of your budget, that you have researched how to get and maintain having happy tenants and also have a clear idea of all of the rental property management costs.

How Much Can You Borrow?

As interest rates rise in 2022, the strategy of purchasing a run-down property, fixing it up, raising the rent then borrowing against that property to buy another is getting more challenging. Lenders want guarantees the mortgage will be repaid even during difficult times and will comb over the property closely before agreeing to issue you a second loan.

Rental property investors must be even more careful about their budget and assumptions about what future interest rates will look like because they’re not going to be able to refinance to take out equity while maintaining a positive cash flow if rates are twice as high as they were just a year or two ago.

August 5, 2022

Real estate investing is one of the top strategic methods investors utilize to be successful. That said, once you begin investing, you quickly realize that reality does not quite align smoothly with all of the success stories you read about online.  Everyone faces unique obstacles that will hold them back in achieving their financial goals. In an effort to assist you in preparation of these common setbacks, below we have identified a few common barriers experienced by first-time investors which prevent them from being successful with real estate.

Knowledge Gap

Investing in real estate requires some studying an obtaining knowledge ahead of time. You should understand the various rules that govern the real estate industry, taxes, analytics, financing options, etc. Luckily, there is a ton of information on all these subject matters you can find online. The quickest way to become literate within the real estate industry is to take some sort of formal education classes. Learning from other seasoned real estate investors is also an option but be careful not to rely on others to educate you on all of the ins and outs of the industry for free.

Not Recognizing Differences On Paper Vs. Real Life

New investors often think it will be a breeze for them to earn money with real estate, given all they have learned in school. That said, the further they get into their first investment project, the more they quickly realize that thing on paper often look very different in real life. This truth can cause new investors to begin doubting their abilities and to lose confidence. As a new investor, you need to prepare yourself mentally for the fact that the road ahead will be full of obstacles. It is likely you will make some rookie mistakes that could cause you to lose a deal. This is ok. The important thing is to learn from your mistakes. With time, you will learn to distinguish a good deal from a bad one. You will also become a better negotiator. All these things will be learned and perfected with practice and time.

No Clear Vision

As with any industry, using only your instincts is not sufficient to be successful with real estate investment. If you want to make money in real estate, you need to have a clear vision and stick to it. As you are learning, you may be confronted with various proposals that seem lucrative, but may not align with your financial objectives. It’s important to identify when investing in a particular deal may make you unable to continue investing in other opportunities.

Being Guided By Feelings

This is a common error often made by beginners and can really impact your ability to be successful with real estate investment. Feeling should have no place in the decision process of a real estate investing. You need to be able to control your feelings, so that they do not interfere with making calculated decisions. You need to base your decision on data not emotions. It is common for sellers to take advantage of a new buyer’s emotions when selling a property. If you simply look at the superficial elements, you may miss the major repairs that a property may need. So, you need to stay vigilant and hire a licensed home inspector to inspect the property before you close any deal.

Being Impatient

Patience and dedication are the two most important areas which will make you successful in real estate investing. Finding the right deal for you can take months of searching and doing research. Without patience and dedication, you may give up before you have a chance to find the right deal for your financial situation. Generally speaking, real estate investments are considered long term investments with the return on investment measured in years not weeks or months. Patience is key throughout your investment strategy. Now that you understand some of the most common obstacles new investors face when beginning to invest money in real estate, hopefully, you will be able to recognize these obstacles ahead of time and troubleshoot them before it is too late. No matter what may come your way, the best advice anyone can give you is to meet all of the challenges head on and not shy away at the first sign of adversity.

July 30, 2022

For those attempting to grow their wealth long term, save for retirement, or achieve a greater level of financial freedom, real estate, whether residential or commercial, offers strong potential to get ahead financially.  Real estate is a great way to diversify your financial portfolio and can offer solid tax benefits, but when it comes to investing in residential versus commercial properties, knowing which strategies are right for your goals can be a real challenge.  If you’re committed to long-term growth with potentially higher returns, the benefits of commercial real estate may be a great fit for you.

Like any investment, real estate comes with its own set of rewards and risks, and commercial real estate differs significantly from residential in its strategies and financing methods.  Understanding the below pros and cons of commercial real estate will hopefully help guide you to decide if it’s a potential good fit for your investment strategy.

What is Commercial Real Estate?

Commercial real estate is a property with five or more units used specifically for business or to generate income. This may include multifamily housing, hotels, offices, retail space, restaurants, industrial warehouses, healthcare facilities, or multi-use spaces.  While in a residential property, it is families or individuals which are the typical tenants; in commercial properties, it is businesses and corporations. It is worth noting that depending on their location, commercial properties may be subject to more complex zoning ordinances than residential units.

Commercial Real Estate Pros

Commercial real estate offers investors a specific set of benefits and opportunities that differ from residential properties. Does that make commercial real estate a better investment? It depends on what you’re looking to achieve, but consider the following advantages to commercial real estate:

Tax Benefits

Commercial real estate is entitled to certain tax breaks that can drastically reduce the tax burden for commercial properties. These tax breaks may include deductions for mortgage interest, depreciation, and non-mortgage-related expenses such as maintenance, renovations, or applicable association fees.  Additionally, you may be able to avoid capital gains tax when you sell your commercial property if you reinvest those profits into another building or asset. It is worth consulting with a tax professional to assist you in navigating the finer points of using an exchange strategy.

Desirable Tenants

Owners of residential properties often invest a considerable amount of time and effort in vetting high quality tenants who can be trusted to care for the property.  Commercial tenants are businesses or corporations who have a vested interest in maintaining a professional public image and are thus more likely to take the care and maintenance of the property seriously to protect their business and their brand overall. The relationship between a business leasing commercial space and the property owner tends to be a more professional type of relationship.

Commercial Real Estate Cons

Professional Services Required

Managing one or more commercial properties each with multiple tenants is similar to running a small business. There’s more to manage, more maintenance, and more public safety concerns. A professional management company is likely needed in order to stay on top of issues and keep things running smoothly.

Zoning

Commercial zoning has multiple categories, and regulations tend to be more complex than residential zoning requirements. A solid understanding of local zoning ordinances is needed in order to remain compliant with local laws.

Bigger Upfront Investment

More upfront capital is required to purchase a commercial property, and with it comes bigger maintenance and upkeep costs. Replacing the roof or the HVAC system of commercial property for example is far more costly than the same repairs on a residential property. Having a capital reserve and contingency fund is a must when you own a commercial property.

Getting Started With Commercial Real Estate

Investors who have done their homework and are ready to try the commercial real estate waters should first make sure they find a knowledgeable real estate agent who is experienced in commercial real estate.  While the upfront cash investment can be out of reach for some investors, there are some more passive options to investing in commercial real estate without purchasing an entire property.  Peer-to-peer real estate allows you to pool your money with other investors and affords the ability to open a portfolio with a much smaller initial investment.  Similarly, “Real Estate Investment Trusts” describe a company that invests in a portfolio of real estate projects and distributes earnings to its shareholders. There are several types of REITs: publicly traded, publicly non-traded, and private, each with its own set of requirements. While REITs are a hands-off way to invest in commercial properties, investors usually have less control over the types of properties they are invested in or when they can access their money.

While the high-risk/high-reward nature of commercial real estate might not be right for all investors, remaining open to considering new property types expands your options and could help you reach your long term financial goals.

July 22, 2022

There are several different types of real estate investment projects, from rehabilitation to building new, each have their own potential risks as well as financial returns. For example, a rehab project has less risk because the structure already exists; therefore, overall the planning and workload are much less than with building a brand new property, however, the potential financial payoffs may ultimately be less.

There are many components to building new real estate that are unpredictable, which can greatly increase the risk factors. While every new real estate build is different, there are some consistent areas to consider in order to properly evaluate the investment potential when deciding whether or not to build a new real estate project.

Project Location

The physical location of a brand new project plays a significant role in determining the overall risk factors. Building new real estate in areas with higher prices and demand present far fewer risks than building in lower populated rural areas. Building in an area where there are buyers before a project is even finished further reduces the risk. You should look at data that indicates real estate demand, such as high employment levels, large-brand expansion in the area and the rate of adult population growth. While there is no perfect or foolproof formula, all of this data can be reviewed to help assess the overall risk level in a particular location.

Common Weather Patterns

Weather is one of the most important factors to consider when planning and budgeting a brand new construction project. Severe rain, snow and temperatures are just some weather factors that can lead to delays and add to additional costs and headaches.  If the project is located in an area that experiences extreme seasonal changes then you should factor into consideration when the project is suppose to start and how long it’s expected to take to finish. Coordinate this estimated timeline with the local weather and see if there are any potential concerns that you should account for before it’s too late.

Increased Material Costs

When first budgeting for a construction project, it’s important to accept that the cost estimates will often increase. A brand new project can take several months to over a year, depending on the project size, leaving plenty of time to see price increases on building materials.  It would be unwise to not expect increased material-related costs over the course of a build.  It is critical to have enough of a contingency built in to the project budget to absorb these increases with out killing the bottom line.  Thin margin deals can easily end up in the red at the end due simply to an increase in the cost of building materials.

Logistics and Management

Anytime you are dealing with contractors, you need to account for delays. Delays are going to happen; from getting tied up at a previous location and arriving late or simply not showing up at all.  It’s not a matter of if the project will experience contractor problems but whether or not they will be a minor or major problem that leads to a domino effect of delays.  Brand new real estate projects have many moving pieces that all need to work together in order to stay on schedule. A scheduling mistake or a logistical disaster can not only cause delays but possibly result in a complete shutdown of the project while things are being sorted out.

Overall Costs

A brand new real estate project involves every aspect of construction from foundation to final finishes.  This reality provides ample opportunities to change the plans which can ultimately increase the time it takes to finish the project as well as the total costs.  While minor pivots and changes are expected, major changes and multiple occurrences can put the project far behind schedule and over budget, which are the two concerns investors dread above all else.

At the end of the day, when evaluating the risks of building a new real estate project, you should look closely at who you have available to manage the project and perform all of the required work to completion. Someone with lots of experience and a proven track record will greatly reduce the amount of pitfalls that claim so many construction projects. The exact same deal with different contractors can have drastically different outcomes and will ultimately make the difference of whether or not a new building project is a good investment opportunity overall.

June 8, 2022

How is it that some people are profitable investing in real estate and others are not, exactly? Put simply, profitable real estate is property that investors purchase as a way to make money through rent and market appreciation.  Real estate investments are a good opportunity because income-producing real estate can offer many benefits, including reliable monthly income to live off of and income that takes minimal effort to earn. Income-producing real estate can help you reach financial independence, which means you’ll have enough money to live off of without having to depend on anyone else for income.  Below we will look at a few key areas that set those who are profitable with real estate investment from those who are not.

They Understand Their Finances

Those who are successful with real estate understand what they can afford. They are able to take a hard look at their own financial situation, such as the amount of debt they have, how much of a down payment they may need to put down, determine the closing costs and rental income and expenses. By doing so they are able to get a sense of whether a particular real estate investment makes sense for their financial situation and long term goals.

They Conduct Analysis

They evaluate potential properties for their investment potential. They want to know current value and possible future performance potential of their investments. They also want to know absolutely everything about the market where they plan to buy property or invest. They check the neighborhood, property tax costs, schools, crime, job opportunities, amenities and listings and vacancies. Perhaps most importantly, they don’t forget to take any location depreciation into account as well.

They Pick The Right Type Of Investment

When decision time comes and they have decided on the right type of investment for their needs, they are at a comfortable place where they can move forward with a preapproval. They keep in mind that they don’t have to invest in just one investment. By doing so they can consider investing in both REITs and short-term investments at the same time.

They Get Preapproved

A preapproval is a document that shows how much a lender will offer someone for a mortgage and includes the amount they may be able to get at a particular interest rate. In order to get preapproved, they are able to submit information about their income, assets and debts by offering pay stubs, W-2s, proof of income, account statements, other loan information and a valid ID. A lender will share what all they will require you to submit at the beginning of the preapproval process.

They Make An Offer

They find a good real estate agent to help them decide on the amount of money they might want to offer for the investment they’re after. An agent is also able to draft an offer letter as well. This can include the amount of money an investor wishes to offer. This allows them and the seller to negotiate the price and terms of the potential sale.

When looking into the types of income producing properties, they can invest in real estate in several different ways. These include real estate investment trusts (REITs), crowdfunding, single-family rentals, owner-occupied rentals, multifamily rentals, short-term rentals, turnkey properties and wholesaling.

Once they understood their finances, conduct the necessary market and investment analysis and decide on the right type of investment for their needs. They are able to move forward, get preapproved through a lender and make an offer on the property they want in order to be successful.

July 1, 2022

Having the skills necessary to become and maintain being a successful property owner does not simply happen by chance.  It requires consistent work and does not come about because of luck or a superior intelligence. Below we will look at a few of the essential skills every property owner should develop if they wish to be successful long term.

Strong Financial Management

Most successful property investors are good at managing their funds. They are able to put aside the necessary money required in order to invest. Once they are in a position to generate money, they continue to put money aside to increase their wealth little by little. You must keep in mind that wealth is not created from one day to the next but rather it is built over time. This process can take more or less time, depending on your unique financial situation. If you want to become a successful real estate investor, you need to develop this skill.

Analytical Skills

You need to be able to properly analyze the property in question if you wish to be successful. Successful investors are able to recognize a good deal when they see one, because they have developed this skill. Great property investors do not base their decisions on emotions, which are often misleading. On the contrary, their decisions are always well thought out. The ability to analyze is acquired with time and experience, but a real estate coach can teach you the basics so that you don’t start from scratch.

Focus

Following a clear strategy and a precise plan for your investments helps to avoid getting lost. You should know exactly what you wish to achieve out of a property investment in order to move in the right direction. On the contrary, if you do not have a clear objective, you take the risk of investing in properties which may not suit your financial needs and moving away from your initial goals. Being clear on your objectives allow you to be focused on your goals. It is this particular skill set, developed over time, which is the key to many property investors success.

Long Term Planning

In this field, it is necessary to use long-term planning. Real estate investment typically requires a commitment for several years. Therefore, it is necessary to analyze the situation carefully before committing to any purchase. In order to be successful, you should ask some basic questions. Does this property really meet my financial objectives? Will you be able to collect enough monthly rent to make a profit? Have you budgeted enough to make any necessary repairs and enhancements to the property? Answering these types of questions will help you narrow in on a specific property that is right for you.

Patience

Finding a good deal can often take longer than anticipated. Patience and perseverance are essential qualities if you wish to be a successful property owner. Real estate investment is not for people who give up easily. Most of the new comers in real estate investing set a goal with a specific time, and they give up after a few months when they haven’t found a property that is profitable for them. Or worse, they jump on the first property they see, fearing that they will never find another. Great property investors know how to temper these natural urges. They are able to act at the right time, and make calculated decisions to turn away from investments that are not right for them.

If you do not have these skills currently, being honest with where you are is a big first step in the right direction.  There are many skills that you can acquire through training, such as analytical, negotiation and management skills. On the other hand, the qualities that come under the heading of “soft skills” can be developed with expertise. You have the ability to partner with people who possess these qualities and can help you achieve your investment goals.

June 3, 2022

Many people believe investing in real estate is the key to obtaining their financial goals. Seasoned investors will be the first to warn, however, that investing in real estate comes with some big risks that need to be weighed before an individual is financially ready to begin investing in real estate. If you’re considering investing in real estate, there’s a lot to know before you make your first purchase. It’s unlike any other type of investment you’ve owned so far, and requires a different approach from how you manage it to how you earn from it.  For anyone who’s wondering if becoming a landlord is the right move for them, below are a few signs that you have reached a point where investing in real estate is the right move for you.

You have savings for retirement

Before anyone starts working towards investing in real estate, they should already be saving for retirement and have enough cash left over. Make sure to consider your retirement needs by allocating the appropriate contributions to a 401(k) plan and/or Roth IRA.  You may also want to consider having a brokerage account before taking on the additional risk of a real estate portfolio.  Anyone considering investing in real estate should build up these areas before becoming a landlord if they plan on being successful.

You have free time to manage your investment

Time is of the essence in real estate investing and you may need a lot more of it than expected to tend to all that a real estate portfolio will require. Ideally, real estate investing is best pursued once you’ve freed up your work schedule or are nearing retirement to allow you the proper time necessary. It can sometimes feel like another full-time job so you should have the extra time to manage the property.  Most of the time you will need to focus on more than just managing the properties and will also need to deal with areas like marketing and legal requirements in the area.  Real estate investing also requires a lot of customer service if you’re planning on renting a property out for additional income. All that management takes time and energy you’ll need to have before investing.

You have cash for a down payment

The process of buying an investment property is a lot like buying a home, but in some ways, it’s more difficult. There’s typically a little bit more upfront capital requirements for investing in real estate. Lenders see rental properties as a higher risk, and charge more for them in interest and require larger down payments. At minimum, you’ll likely need a full 20% down payment to be able to start investing in real estate.  If you have the cash on hand to start investing in real estate, it’s likely a sign that you’re financially ready to start if your other goals are met. However, keep in mind that you’ll also need other cash to keep and maintain that building. It is wise to set aside money for unexpected repairs and still being responsible to pay the mortgage if the property sits unoccupied for a period of time.

Like any investment, profit from real estate isn’t a given. Anyone who’s considering investing in real estate should do so with that understanding that real estate isn’t necessarily a better investment than stocks, or vice versa. There are many variables at play and success in real estate can come down to simply the location or any number of other things that may or may not be within your control.  While the same can be said for the stock market, it’s worth noting that real estate is unique in some of its risks. Hopefully the above areas will help guide you to make an informed decision on whether or not you are ready to invest in real estate.

May 27, 2022

Many people are unable to afford the cost to invest in rental properties in the same area where they live. In much of the country, the cost of housing currently is so high that it can be challenging to grow your real estate portfolio with properties in the same geographic location. Luckily, investing in out-of-state properties is one easy way around these current geographic challenges. Below we will discuss a few advantages and disadvantages of investing in out-of-state real estate.

Advantages Of Investing In Out-Of-State Properties

It may seem unusual to some to even consider investing outside of your city or state. It is worth taking a closer look at a few of the benefits and reasons behind why many investors consider this strategy to be a profitable and wise financial approach.

Saving Money

If you currently reside in a part of the country where properties and maintenance are skyrocketing, you may find more reasonable options in other geographical locations which can directly impact your ability to grow long term profits in an investment property.  Lots of investors weigh their options and decide investing outside their area is the smartest financial decision they can make to meet their long-term financial goals.

Higher ROI Opportunities

If you spend the time to do the proper research and get into an area where the population and job growth are still in the development phase, you may find a dream scenario that simply does not exist near your home. Lowering the cost you have to spend to secure a property in an area with rising rents can often generate more cash flow and build equity more quickly for when it comes time to sell.  Even if you only hold the property for a few years before you decide to sell, you may receive a higher ROI than if you invested in an area with high costs and low growth.

Investment Diversity

Putting all your eggs in one basket is never a good idea with any investment. Deciding to place all of your money in the wrong market could leave you in financial ruin if that market ever crashes while you are holding real estate investments in the area.  To the contrary, if you put some of your investment funds in your local market and other funds in other parts of the country, you can help offset the risk of one market falling apart.

Disadvantages Of Investing In Out-Of-State Real Estate

Time Consuming Research

Not living in a particular area probably means you won’t know all the specifics about another potential market you may want to invest in. Even if the market looks good from the outside there may be indicators you are not able to easily see without seeing the area. If you prefer to be more of a hands on investor who likes to periodically visit your investment, you may feel uneasy about being far away from your investment, and be forced to rely on a third party to tell you how things are going which can make some feel uneasy.

Different Laws

Even if you are familiar with all of the specific laws pertaining to real estate in your area, laws may very well differ in other states or cities. If you do not know about all of the local laws ahead of time, you could unintentionally break one of them and be subject to added liability and/or fines. This is a solid reason why it is recommended that investors only work with qualified property management companies who will understand the rules in the area and help ensure all legal obligations are properly met.

Purchasing A Property Blind

Nowadays, most real estate markets throughout the country are particularly hot and properties are selling at record speeds. If you don’t move fast or are financially able to offer above asking price, you could lose the deal. This unfortunately may require the need to purchase a property without seeing it.

Should you invest in out-of-state real estate? It all depends on your financial situation and your risk tolerance threshold. That said, with the proper research you may have the potential to save money when buying a home and earn more money monthly as well as when the time comes to sell of the property.  Investing in areas with high demand and rising appreciation will help ensure you get the most out of your investment. Diversifying your real estate investments across multiple geographic locations is one solid way to manage your risk while increasing your chances of gaining significant profits in the future.