Solving the real estate investment fear factor
If you are a new real estate investor who has thought about investing in real estate, but have had a nagging feeling that you are sure the market will crash once you step in and you will lose all your money; guess what, you’re not alone.
Fear takes hold of every new investor; And no one who successfully invests in real estate today would say otherwise. It is common for potential investors to miss out on incredible opportunities for no reason other than an overwhelming sense of fear.
Okay, let’s tackle some of the more common fears and see if we can help you feel less anxious and maybe get 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, and there is something left to deposit in the bank. Having to feed a property is not enough; no investor wants to pay for rental property out of pocket.
Believe it or not, this fear might be the easiest to handle because it’s straightforward – just run through the numbers before you buy. Obtain the property’s last twelve-month operating income and expenses, calculate a mortgage payment, and plug 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 it is fully occupied), operating expenses (don’t forget about replacement reserves), and a loan payment to calculate your annual cash flow.
Also, never retire simply because the property indicates negative cash flow. Dig a little deeper and find ways to manage cash flow. Many rental income properties simply turn negative due to poor property management; You may have a chance of increasing rents and reducing operating expenses. Who knows, you may even discover a real opportunity overlooked by the current owner.
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 consistent appreciation. Perhaps not overnight, and not without an occasional increase, but historically, the value of real estate increases over time.
Lose your money
Of course, you don’t want to tap into your savings to make perhaps the biggest financial investment of your life only to end up losing everything.
The key, however, is to study and research. Know the property you want to invest in and the area where you plan to invest. Look for information sources like seminars, college courses, real estate software, and real estate investment books. Get an expert property appraisal from an investment real estate professional or appraiser. There is always some risk when investing in real estate, but knowingly developing a plan will eliminate most of your uncertainties.
Management and tenant issues
Okay, it’s true. Nobody wants the headache of having to repair a refrigerator or complain about a rebellious tenant; And it is understandable why that concern prevents many people from becoming real estate investors. But life is always a series of tradeoffs, and an occasional migraine is usually worth trading for potential future wealth.
However, it is also true that over time you will learn to cope with and manage most problems while you sleep. If not, you can always enlist the services of a reputable property management company to take care of it for you. About ten percent of rental income, a property manager will do all the dirty work; The upside is that it will relieve you of the time and stress of dealing with tenants and repairs, while putting things like late rents in the hands of experts.
Lack of real estate experience
The fact that you have not yet purchased an investment property should not prevent you from investing in real estate. In this case, find a local broker who specializes in investment property to help you.
When it comes time to buy a rental rental property, you will be surprised to find that it is not as insidious as it sounds, and tapping into the mind of an expert will significantly increase your comfort level. But the keyword 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
Of course, the hardest part of diving into real estate investing is getting started. We’re great at making excuses, and there are always plenty of reasons to put off starting something new.
Yes, we want to be cautious. Better to put the breaks and approach the real estate industry with the proper knowledge. So if you are struggling, here is my suggestion: learn, do your 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 the first rental property, make a purchase, and then take over as manager. If you’ve stuck to your investment plan goals, calculated the numbers, done your due diligence right, and worked diligently to increase income and control expenses, you can move to bigger and better properties over time.