Thinking About Investing in Real Estate?
Owning real estate is a great way to invest, but like any type of investment, buyers should fully understand what they’re getting into. Some properties are great investments, and some should be avoided at any cost. Do you know the difference? It’s usually not as simple as age and condition.
Books, articles and podcasts abound with “get rich quick with real estate” programs. Like anything that seems too good to be true, proceed with caution. While the information is not necessarily wrong, they tend to gloss over the pitfalls and challenges. Yes, you can make money in real estate investment, but it takes hard work, and mistakes can be costly.
Don’t be discouraged, but do become educated. Employing a top real estate broker, accountant and attorney is critical, but even with the best team, there is no substitute for education.
Learn the local rental market. What kind of units are in demand? How much are rents, and do they include utilities? Are landlords offering incentives – cable, internet, free rent? What areas rent quickly? What areas don’t?
Ask a lot of questions. Does your Broker sell multifamily on a regular basis and understand cap rates for different property types? Can they help you drill down to a “real” net operating income number, as opposed to what’s listed in the marketing package? Do they know the local rental market?
Will you self-manage or use a professional management company? You may be handy, but don’t underestimate the wear and tear of the midnight calls when the heat is out, or the cranky tenant who doesn’t pay rent on time. Either way, make sure to build a management fee into your evaluation when reviewing a potential purchase.
How will investment real estate affect your taxes? Learn what deductions you can and can’t take. Learn what’s a repair and what’s a capital improvement. Find an accountant who stays up to date on the constantly changing tax laws and who will keep you informed, but don’t rely on your accountant to sort out a box of receipts or a rambling spreadsheet to find your deductions for you.
Look for an attorney who will review your situation and help you decide what type of ownership entity is right for you. Find someone who knows the local market and is familiar with common code violations, evictions, etc.
Most importantly, find advisors you trust, who will answer your questions, share information on questions you haven’t even thought to ask, and help you learn. Ultimately, you are responsible for your own investment decisions, so educate yourself and make them wisely.