Resolving the Real Estate Investing Fear Factor
Negative Cash Flow
Hey, the idea behind investing in real estate is to make enough money to cover operating expenses and loan payment with some left over to deposit in the bank. Having to feed a property won’t cut it; no investor wants to feed a rental property.
Believe it or not, this fear one might be the easiest to manage because it’s straightforward: simply run the numbers before you buy. Obtain the property’s last twelve months income and operating expenses, calculate a mortgage payment, and plug the results into a spreadsheet or real estate investment software program to determine cash flow. If the cash flow is negative, so be it, otherwise dispel the concern and move ahead.
Just be sure to use realistic rents, a vacancy rate (even if the owner claims full occupancy), operating expenses (don’t forget replacement reserves), and a loan payment to compute your annual cash flow.
Also, never walk away merely because the property indicates a negative cash flow. Dig a little deeper and look for ways to manage the cash flow. Many rental income properties simply go negative because of poor property management; you might have a probability of raising rents and cutting operating expenses. Who knows, you may even discover a real opportunity overlooked by the current owner.
This Isn’t the Right Time
Yes, for any number of national or international events, potential investors often feel it would be advantageous to wait for better times before making an investment in real estate.
But real estate investment has little to do with the economic climate at the time you buy. Foremost, consider the long haul. Economic depressions come and go, but how will the investment property impact your future rate of return? That’s what counts.
If it helps, bear in mind that unlike the fluctuating stock market real estate has a profound record for steadily appreciating. Perhaps not overnight, and not without an occasional bump, but historically, real estate value does go up over time.
Losing Your Money
Of course, you wouldn’t want to tap into your savings to make maybe the largest financial investment of your life only to wind up losing it all.
The key, however, is to study and research. Learn about the property you want to invest in, and the area where you plan to invest. Look for sources of information like seminars, college courses, real estate software, and real estate investing books. Get an expert appraisal of the property from an investment real estate professional or property appraiser. There’s always some risk when real estate investing, but developing a plan with knowledge will negate most of your uncertainties.
Tenant and Management Hassles
Okay, it’s true. No one wants the headache of having to repair a refrigerator or to fuss with an unruly tenant; and its understandable why that concern does prevent many people from becoming real estate investors. But life is always a series of trade offs, and trading off an occasional migraine for potential future wealth is generally worth it.
However, it’s also true that in time you will learn to deal with and manage most issues in your sleep. If not, you can always hire the services of a reliable property management company to deal with it for you. For about ten percent of the rental income, a property manager will do all the dirty work; the advantage being that it will relieve you of the time and stress of having to deal with tenants and repairs and in turn puts matters like late rents into the hands of experts.
Lack of Real Estate Experience
Just because you have not yet purchased an investment property should not keep you from real estate investing. In this case, locate a real estate agent who specializes in investment property to assist you.
When it actually comes time to buy a rental income property, you’ll be surprised to discover that it’s not as insidious as it looks, and tapping into the mind of an expert will increase your comfort level significantly. But the keyword here is investment property specialist. A real estate agent who just sells houses won’t benefit you; you want a real estate professional with true real estate investment experience.
It’s Time to Get Started
Granted, the hardest part about jumping into real estate investing is getting started. We’re great at making excuses, and there are always numerous reasons to put off starting something new.
Yes, we want to be cautious. It’s better to put the breaks on and approach real estate with adequate knowledge. So if you’re struggling, here’s my suggestion: learn, research, and plan. Educate yourself about real estate investing, learn about real estate in general and more specifically about your specific real estate market, and develop a road map about the financial security you hope to achieve.
Afterward, pick out that first rental property, make a purchase, and then take over as manager. If you’ve stuck to your investment plan goals, calculated the numbers, did your due diligence correctly, and work diligently to increase income and control expenses, in time you’ll be able to move on to bigger and better properties.
After all, that is the nature of real estate investing.