A few questions to ask before you invest in real estate
Most people can succeed at investing in real estate if they’re willing to do their homework. Following, are several important questions to help you decide whether you have what it takes to succeed and be happy with real estate investments that involve managing property.
Do you have sufficient time?
Purchasing and owning investment real estate and being a landlord are time consuming. The same way an uninformed owner can sell property for less than it’s worth, if you fail to do your homework before purchasing property, you can end up overpaying or buying real estate with a slew of problems.
Finding competent and ethical real estate professionals takes time. Investigating communities, neighborhoods, and zoning also soaks up plenty of hours, as does examining tenant issues with potential properties.
As for managing a property, you can hire a property manager to interview tenants, collect the rent, and solve problems such as leaky faucets and broken appliances, but doing so costs money and still requires some of your time.
Of course, if you hire a competent and experienced property manager, you will be rewarded with less time required for oversight.
Can you deal with problems?
Challenges and problems inevitably occur when you try to buy a property. Purchase negotiations can be stressful and frustrating. You can also count on some problems coming up when you own and manage investment real estate.
Most tenants won’t care for a property the way property owners do. If every little problem causes you distress, at a minimum, you should only own rental property with the assistance of a property manager.
Does real estate interest you?
Some of the best real estate investors have a curiosity and interest in real estate. If you don’t already possess it, such an interest and curiosity can be cultivated. On the other hand, some people simply aren’t comfortable investing in rental property. For example, if you’ve had experience and success with stock market investing, you may be uncomfortable venturing into real estate investments.
Can you handle market downturns?
Real estate investing isn’t for the faint of heart. Buying and holding real estate is a whole lot of fun when prices and rents are rising. But market downturns happen, and they test you emotionally as well as financially.
No one has a crystal ball, so don’t expect to be able to buy at the precise bottom of prices and sell at an exact peak of your local market. Even if you make a smart buy now, you’ll inevitably end up holding some of your investment property during a difficult market (recessions where you have trouble finding and retaining quality tenants, where rents and property values may fall rather than rise).
Do you have the financial (and emotional) wherewithal to handle such a downturn? How have you handled other investments when their values have fallen?