If you’re looking for another source of income or wanting to change your career path, you may be interested in hearing about investing in real estate. This type of investment can be a tempting option that can give you a good return over a long period of time.
However, real estate investing isn’t always the easiest and the most reliable way to earn an income. You need to have a strategy that is well thought out and researched, and you need to have a large sum of money to put up front.
Real estate investing is expensive right at the start, and it can continue to be pricey—assuming you don’t sell the property quickly—with the ongoing maintenance required.
If real estate investing sounds intriguing to you, here are a few points you should consider first.
Depending on Your Financial Situation
Real estate investing will only be a good idea if you can afford to do it, obviously. There are many upfront costs you must consider, as well as any renovations and maintenance that you will be responsible for. If you cannot afford these, then real estate investing may not be a good option for you at the moment.
The types of expenses you need to consider include the initial cost of purchasing the property and the costs of utilities, taxes, and the upkeep of the property. Even if you have enough money at the start, you will want to ensure that you still have enough in your account to get you through a period of owning the property.
If you are considering real estate investment but are unsure how much money you should have saved, consider this – there are four critical points to remember:
- You need enough for your down payment.
- There will be closing costs that also should get factored into your budget.
- It doesn’t end there. Owning real estate is an ongoing cost with any maintenance and repairs that are needed. Also factor that into your budget.
- A reserve is especially important. Ideally, if you had no tenants in your building, you should be able to still pay your mortgage for at least six months without any income from your investment.
Depending on the Location
Location means everything for real estate. You could have the perfect property, but if it is in a bad area, that investment will likely burn through your wallet.
No matter where you’re looking—in Winnipeg, Nova Scotia, or the Toronto real estate market, for example—location can make an attractive-looking investment go wrong very quickly.
If you purchased a cheap property without considering the location, how much money do you think you’ll get in return? After you fix the place up, it may look beautiful and be a perfect office space or rental unit; however, if your building is at the outskirts of town, in an undesirable area or has no amenities around, there’s a good chance it will sit vacant. Every day your property is unoccupied, it costs you money.
Research the location of your potential property. Consider some of the following features before making your decision:
- Public transportation and parking
- Gas stations and convenience stores
- Parks and green spaces
- Restaurants (both sit-down and fast-food)
- Shopping centres and commercial properties
- Anything that will affect the property value of the area
Remember, a run-down property can be turned around if the location is right. You can’t do the opposite, however.
Depending on the Economy
Another factor that can make or break your real estate investment is the economy. The real estate market will fluctuate over time due to macro-economic factors, and your return will follow suit. Timing when you make your investment is crucial to your success.
It is not a good time to invest in real estate when the economy is doing poorly as the public won’t have so much money to rent new properties or move out of their existing ones (unless, maybe, they are downsizing).
However, as with any other form of investing, if you catch a weak economy just before it starts to rise again, you can be more certain of making money.
Are You Committed?
If you’re looking to invest in real estate, you want to be committed to it. You will have tenants that rely on you in case anything goes wrong with the building.
Good landlords are those that are reliable and ready when there is an issue with their property. If you’re not, it will be hard to keep good tenants in the long-term, which will cost you money down the road.
Imagine if you were in a rental place and the dishwasher broke down. There is water all over the kitchen which could potentially wreck the floor. So, you contact your landlord to get help as soon as possible before any more damage occurs.
Instead of him or her coming over right away, it takes three days before you see your landlord. Not only do you have a broken dishwasher, but now the kitchen floor is warped from the leaking water. For you, the tenant, that is a frustrating situation that would make you want to move somewhere else.
When you own a piece of real estate, it is not free money coming in: there will be times when you’ll have to do a bit of work, and you may encounter bad tenants who don’t pay their rent on time. As the landlord, you’ll have to stay on top of everything involving your property.
Real Estate Investing income
Generally speaking, real estate investing can be an excellent way to earn a passive income. What can make it a bad investment is lack of knowledge, unfortunate timing, not enough money, and not having the resources and motivation needed to maintain the property.
It’s fairly common to think that real estate investment is only for the rich. However, that is not true. Real estate investing can be for anyone who adequately prepares themself. Although it can be an expensive venture at the start, it can be very worthwhile in the end.
So, if you are considering investing in real estate, you’ll want to ensure that you have all your ducks in a row and that you can handle all the expenses and challenges you will likely encounter. Start making a plan to keep yourself on track for your first property.