The goal of real estate investing is to create either a quick income or a passive, consistent income. Overall, it’s about wealth creation. There is a right way and a wrong way to go about investing in real estate. There are things to think about like how much time and effort a property will require, the location of the property, and how fast it can turn a profit. If you’re new to real estate investing, here are three things you need to know to get it right.
How much time and effort will the property require?
When investing in a property, look it over well. Evaluate what kind of time, effort, and extraneous money it will require to make it turn a profit. For instance, a “fixer-upper” property is code for a larger investment in getting it move-in ready. While not all fixer-uppers are poor investments, when you’re new to investing, these are properties to avoid.
Fixer-uppers and properties that require TLC (tender loving care) are high maintenance properties. Some examples of this kind of real estate include vacation rentals, college rentals, properties in rough areas, and real estate that will take up your valuable time, extra money, and effort. You will be spending more time than you should keep these properties maintained, cleaned, and in good repair, which makes them useless as a quick return on your investment.
How much risk is involved in property investment?
Real estate is an investment that is expected to reap rewards, not problems. Properties that are considered high-risk need to be left to professional investors who regularly take risks in their investments. Not everyone can afford to take that risk.
Avoid risky property investments by avoiding fixer-upper houses (as mentioned previously), Tenant-in-Common (TIC) investments, land-only investments, and private real estate funds. Instead, choose properties that are well-establishes as good cash-flow investments.
Too many things can go wrong in risky real estate investments. You avoid such investing issues by doing your research, testing, analyzing, reviewing, and getting reliable property investment advice. In other words, do your due diligence before taking that step into real estate investing.
Is this a fair cash-on-cash return investment?
Investing in property requires that you remove funds from a fluid type of financial asset to put it into a vastly illiquid asset. Real estate isn’t a fluid asset like your interest-bearing bank account, savings account, CD, or stocks and bonds. Shoot for real estate that gives you the fair cash-on-cash investment you need.
The best way to achieve your goals in a fair cash-on-cash real estate investment is to calculate the present and future financial returns on your investment, also known as Pro-forma. You need to do this to discover what real estate investment is going to provide you with the highest return on investment (ROI) and positive cash flow. Avoid negative investments in property such as risky and time-consuming properties.
The best way to avoid negative and risky real estate investments is to rely on boring and basic properties that won’t take up your time, effort, and cost you more than it should in the present and the future. A property that can be rented for a long period to low-maintenance tenants that have good credit is ideal in real estate investing.