Five Fears that Might Keep You From Investing in Real Estate Aug27

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Five Fears that Might Keep You From Investing in Real Estate

You’re aware that I consider Real Estate a sound long-term investment. Real Estate can also be used to create cash flow either through rental property or buying and reselling. I refer to this as quick turn Real Estate – kind of like trading.

So if Real Estate is a sound investment, what keeps people from purchasing either investment Real Estate or a home? There have been five main fears or objections identified.

So Here are the Five Fears that Might Keep You From Investing in Real Estate :

Five Fears that Might Keep You From Investing in Real Estate1. Property Value Loss

We are all aware of the huge loss in value that many have suffered because of the economic down turn in the last several years. What else can affect the price of your property and what can you do to prevent taking a BIG hit? Some of the things to avoid:

  1. Neighborhoods that are on the decline
  2. Areas where there is a lot of new building, which is more attractive than the older homes
  3. Public or unpleasant development such as prison, freeways, factories – you get the idea

I tease in class and say that if I had my crystal ball, I could predict what was going to happen, but we all know that it doesn’t work that way. So what should you look for?

  • Areas with low-crime
  • Property that is well kept
  • Good school districts

I share some great websites in class that can help you easily get this kind of demographic information.
Historically, Real Estate has an 8.6 percent rate of return a year, over a ten-year period of time. So, if you took the above precautions, you might have to wait for an up turn in the market, but in the long run, your investment will have gained in value.

2. Maintenance Cost and Fix Up Cost

If you are buying an investment property, one of the things you must consider is ongoing maintenance and fix up cost. One of the first things that should be done when buying a property is to have an inspection done. There is often an acceptable period of time (five to ten days) in which to have this completed and still cancel the contract. Once this is complete, you will have a much better idea of the cost to repair the property and what might need ongoing maintenance. There are also a few things you can do to avoid additional fix up and maintenance costs:

    1. Purchase a property that has been well-maintained
    2. Purchase a property that has recently had major components upgraded or replaced, such as roof, water heater, plumbing and electrical, etc…
    3. Purchase new construction, often comes with a warranty
    4. Purchase a home warranty

 

Also, make sure that you have an emergency fund. When we run numbers on an investment property in class, we always build in fix up cost and ongoing maintenance.

3. Buyer’s Remorse

Are you concerned that you’re not going to buy the right property? If you have a clearly defined list of qualities and know your limitations, you will make a better decision. Have a list of features you must have and ones that aren’t acceptable. Then make sure you view several properties and revisit the list. When you find a property that feels right, run the numbers and then sleep on it. Don’t exceed your budget, nothing will bring remorse faster. Also, remember that if one gets away, there is always another one around the corner.

4. Not being able to make the payments on the property

– If the property is a quick turn property, you should have at least six months of mortgage payments at your disposal. You should have also run the numbers (an exercise we do in class) to see if the property will break even if rented. It’s important to have a plan “B.” If it’s a rental property, then you should know what the expected vacancy factor is and have that calculated expense into your monthly budget. This will let you know the affordability of the property.

5. Finding the Money

  1. If you feel that you lack the financial sophistication to manage finding the right loan, there are a several things you need to do.
  2. Educate yourself on the different loans that are available. There are many resources online, in bookstores or the library (yes, they’re still around).
  3. Make sure your resources are in order
  4. Have a Statement of Financial Position
  5. Use a Mortgage Broker with a good reputation who has been in the business a long time
  6. Look into using retirement funds if this is an investment (we cover this in class)

The message is that being prepared eliminates fear.

Great Fortune,

– Diana Hill