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Buying Your First Investment Property
So you've done it. You've found your dream job, saved some money, bought your own home, and are working toward investing in your future financial independence or retirement. Several friends have told you that real estate is one of the things you should invest in and they're right.
However, before you run out and buy as much real estate as you can there are more than a few caveats:
Real estate is a long term investment. While generally matching or surpassing overall inflation, it does have its cycles and those periods of both up and down can last several years. You have to be willing and able to sit out those times and be comfortable with going through the low years.
As with any real estate, location, location, location is important, but if you're investing in residential properties the locations you choose for your own home aren't necessarily the one you want to choose for your investments. Unless you plan on eventually living in the home, the location should be chosen on maximizing your return on investment, not entirely on aesthetics.
There are great tenants, not so great tenants, and awful tenants. Regardless of whether your real estate is residential or commercial you need to screen your applicants carefully. Even with awesome screening there is no guarantee that a tenant will be great. Be prepared to deal with this or consider hiring a Property Manager to act as your agent.
All property requires maintenance. Most of it is long term and can be planned strategically over the years, however there are emergencies. Clogged toilets, leaking roofs or plumbing, and electrical problems are some items that can need immediate attention. You'll need to be able to be reached easily or these problems can damage your investment quickly. Make sure you're able to budget and manage the maintenance and handle the emergencies or be prepared to hire a qualified Property Manager. No, cousin Jim who lives nearby doesn't count unless he has a Real Estate Brokers License in California.
Not all investments are created equal, which should go without saying. Before putting your hard earned money down on your first real estate investment know the numbers. Your real estate agent, along with your lender, can help you understand the intricacies of real estate financing and investment to help you obtain your financial goals so you don't get caught flat footed. An agent familiar with investment real estate will be able to provide you a written proforma on each property you considering all factors toward reaching your goals.
Real estate investing can make up an important part of your portfolio. As with any investment toward your future, make sure you understand not only the pros, but the cons. Build a team of real estate and financial professionals to assist and work for you for the long haul.