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So You Want to be a Real Estate Investor? - Part 2
December 3rd, 2007 categories: Columbus, Local Communities, Real Estate News
In my last post I discussed the ins and outs of investing in real estate by renovating and re-selling properties to realize a short term profit. Today let’s look at the concept of investing in rental properties as a longer term strategy.
In recent years, many a client has come to me considering this avenue. Ups and downs in the stock market, high housing inventory and low interest rates can make income producing properties a good option. If you are considering the purchase of rental property, here are a few things to consider.
- How much money do you have to invest?
- What are your objectives? (i.e. long term equity growth, short term cash flow, etc.)
- Will you self manage the property or properties?
- What are the tax ramifications of your strategy?
- Is your spouse or partner on board with the plan?
Knowing how much money you have comfortable access to is critical to analyzing your purchase options and return potential. Please be conservative and do not enter into this lightly. Looking at rental properties as a quick source of income is a mistake. Understand the potential risks and how they could affect your finances.
Think carefully about your goals. Investing to help with your childrens’ education in 10–15 years is very different from building a large stream of income in a 2–5 year period. Both are achievable, but they likely will not go hand in hand.
Determine if you will handle all management and repairs or if you will enlist the services of a property management company. Though a property management company can provide a wide range of services, it will come at an expense and may not be justified for the small scale investor. If you plan to manage for yourself, be aware that most repairs and maintenance items will show up unexpectedly and may require swift attention.
Before you begin investing be sure to speak with an accountant to understand the benefits and drawbacks owning rental property may present. Each situation is different and you will want to have an idea up front of what to expect come tax time.
If you are not the only decision maker in the family, please be sure everyone is on board. I have seen many folks excited about the process only to learn that the spouse or partner was not at all supportive. Sometimes this is only a matter of education and understanding the true risks and rewards.
Don’t get me wrong here. I am all for real estate as an investment vehicle and am not trying to scare you. I just want to be sure you really think about your decision and make sure it is right for you. Many is the time I have heard someone say “I am tired of being a landlord”. I contend if you do your homework and know what your goals are it may be just the thing for you.
Nice article, guys. Thanks for the plug!
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