Five Fears About Real Estate Investing You Might Want To Reconsider
This is not about the risks associated with real estate investing. For, not unlike any financial investment that is based upon the future projections of rents and cash flows and market conditions, there is always a risk-factor with real estate investing. Just ask any investor who took the plunge on a rental property with the highest expectations of making money only later to become an unfortunate victim of an outcome that lost money. So risk should always be considered, but it's not the issue here.
Instead, I want to address another five fears that commonly plague potential real estate investors along with some comments that I hope might make you become less anxious about investing, and maybe get you to reconsider the idea.
1. Negative Cash Flow
Cash flow is the amount of money that remains at the end of the month after all the rent is collected and the property's operating expenses and mortgage is paid. And though it's impossible to accurately forecast unexpected increases in vacancy that might occur later and take a bite out of your rental income, nonetheless it is possible to lessen the chance of negative cash flows by carefully running the numbers before you make the investment.
- Obtain the rental property's last twelve months income and operating expenses from the current owner.
- Validate that the rents are comparable to similar-type rental properties in the area, the vacancy rate is in line with the market, and the operating expenses indicated are realistic. Just bear in mind that the current owner might be collecting higher rents at a lower vacancy rate and paying less for operating expenses than is realistic. Not collecting a security deposit could account for the higher rents and lower vacancy, for instance, and doing all the repairs himself might be the reason why the operating expenses are skewed.
- Once you're sure that the income and expense data is reasonably accurate, plug in your mortgage payment and compute the cash flow to ensure that it's positive.
2. Not the Right Time
One of the proven benefits of real property is that it has a profound record for steadily appreciating and historically increases in value over time. So if you're given the opportunity to make a sound real estate investment that you can afford without putting undue hardship on your family budget (and our country is not plunging into a depression) than it's likely the right time to start investing.
3. Loss of a Nest Egg
Yes, real estate investors have been known to lose their savings on duplexes, apartment and office complexes, land and other real estate investments. It happens. Moreover, there's no guarantee that it can't happen to you. You can, however, greatly mitigate the risk by developing an investment plan with some degree of knowledge. Turn to the investment seminars, books and real estate experts to learn about your desired rental property type and its surrounding market area before you pull out your checkbook.
4. The Hassles
Sure, dealing with tenants and repairs can be frustrating. But if you include a cost for reliable professional management in your initial real estate analysis and can justify it, then let a professional deal with the day-to-day operations and fuss, and spare yourself the stress and hassle.
5. Lack of Experience
Okay, because you're new to real estate investing you certainly do lack experience. But you do have resources at your disposal to offset this. I already suggested a degree of study and research earlier, but let me also suggest that you interview a couple of real estate agents in your area who specialize in investment property and then select one you are comfortable with to assist you.
Rule of Thumb
There are no certainties in life, and making an investment in real estate is not a guarantee that you will enjoy the same success as others. But if you do your homework, maybe solicit the help of some qualified professionals, and remain patient enough to wait for the right opportunity, you should do fine.
Here's to your real estate investing success.