by Maybe you were watching TV (or YouTube) at 1:37 AM on a Tuesday night and you saw a video that went something like this….
“You can invest in real estate with $0 down. You don’t need experience, a real estate license, or any knowledge. The only thing you need is a desire and to pay $39.95 for my course and you too can be retired by 26 years old”
We aren’t saying it isn’t possible however what we want to encourage you to do is to dig into the details and make sure that real estate is for you.
Before we go further we love real estate. We owned our first home at 24 years old (it took 3 of us to afford it) and owned our first investment property at 26 years old (again two of us buying it).
There is something about owning real estate. It’s a physical thing. You can go up to it, touch it, walk in it, and it’s real and not just numbers on a screen.
With that disclosure out of the way let’s dig into some questions you should ask before you start investing in real estate. For today we are going to talk about owning physical real estate and not a real estate mutual fund that does the buying of the real estate.
The questions today are also directly related to owning real estate as an investment not as a primary residence.
Do you know the real estate market that you are buying in?
When we say do you know the market a few questions we believe every real estate investor should know.
- What is the average rent in the market?
- How long, on average, does it take to find a renter?
- What do renters expect in the market?
- What % of the neighborhood is owner occupied vs non owner occupied?
- What is the average % of increase in rents on an annual basis?
- What are the primary industries that support the market?
- When real estate has fallen in value how far did it fall?
- When real estate has fallen in value how long did it take to return to previous levels?
These are just a handful of questions that we believe a real estate investor should know. When you purchase real estate it’s likely that $10’s of thousands of dollars will be invested. Whether that’s your money or investors’ money it’s real money and you need to make sure that you have the answers to the tough questions.
When you are a real estate investor you need to be an expert in what you are buying. We aren’t saying you need to get a real estate license. We recommend studying as much as you can about the area. It doesn’t mean you won’t consult those who are in real estate full time it just means to do your homework.
Have you physically been to the home/property and walked the neighborhood?
It only takes a few searches on the Internet to find someone who bought a property, site unseen, out of state, only to realize it was a disaster.
Before you put an offer on a property have you seen the neighborhood? Have you driven around or better yet walked around the area.
We hear all the time:
- I am busy
- I have seen pictures on the Internet
- I have a friend in the area who tells me what’s going on
Before you invest in real estate we firmly believe you should see the property yourself. You should know the area. The good parts, the bad parts, and what the future of the neighborhood is going to be.
Real estate is a long term investment unless you are an experienced home flipper (it’s never as easy as the TV shows lead you to believe).
Do you have your finances in order & are you prepared for repairs?
Real estate costs real money. We aren’t talking about the value meal at McDonalds. We are talking about a nice steak dinner for repairs. Something that may look “easy” or “cheap” can quickly turn into thousands
Before you dive into real estate we recommend having both cash and credit available. A $5,000 repair could turn into $10,000 quickly and your contractors will need to be paid.
A few financial rules for real estate that we recommend:
- Have a minimum of 3 months mortgage for the investment property in the bank. If the average time on market to get a property rented is longer (like 6 months) we recommended having at least that amount in the bank.
- Have money for repairs in the bank. Ask a local contractor costs of items such drywall repair or broken window repair.
- Keep money in the bank or credit for appliances. They will break and they will break when you least want them to. Make sure you know how old the appliances are and what a replacement will cost.
We aren’t trying to scare you away from real estate. As we mentioned at the beginning we love real estate. What we want to do is to make sure your real estate investment experience is a positive one. We want you to be as prepared as possible so you are a long term real estate investor.
What questions do you have about real estate investment?
Twins Rules for Financial Success
As with all of our content here we want to encourage you to follow three core rules :
- Have an Emergency Fund/Squirrel Funds
- Invest for the Long Term
- Invest Automatically & Consistently
