You might have seen a lot of infomercials on TV promoting different real estate investment programs. They all make it sound that you cannot loose money and you are just a phone call away from becoming a millionaire and living the good life. Most of us are smart enough to take those claims with a grain of salt. But if you were ever tempted to pick up a phone and buy one of those programs, here are a few things to consider.
While it is true that you can make a lot of money in real estate, like with any investment, you can loose a lot too. If you want to make a profit by investing in real estate, you must be willing to commit more resources to this property than you would to an investment made at your bank, through a broker, or in a mutual fund.
Someone has to collect rents, find good tenants, and maintain the property. If you hire help to do these tasks, your profit shrinks.
Also, if you borrow money to buy the property, you have to pay the mortgage whether or not the property is rented. You should have emergency funds so that you will not lose the property to foreclosure if you lose your tenant or you are able not to find a suitable buyer.
If you decide to invest in property, you may need professional help to match your resources to property that will meet your goals. Some of the questions you should consider before you invest:
What can you afford?
Determine the highest price range you can sustain, given your present resources and the projected cash flow from the property.
Is the property fairly priced?
Get a list of comparable listings and recent sales from a real estate company. Make any purchase offer contingent on the results of structural and pest inspections. Check local records to verify that additions and major improvements were made in compliance with building codes.
Are there any restrictions on the property?
Rent control will lower the price that you can afford to pay for a property.
Who will be your tenants?
Evaluate the likelihood of non-payers, transients, and untidy housekeepers - and adjust your price accordingly. If you are buying a condominium in a building with particular demographics (i.e., college students), you may find it difficult to find tenants who are outside of that demographic group to living in the unit.
Investing in real estate can be very profitable, but before you invest you should be fully aware of all the nuances, or you could loose your money or end up with more work and less return than you anticipated.
