Adventures in Real Estate: Am I Ready to Invest?
Anyone interested in purchasing property outside of their primary residence needs to understand their risk tolerance and the work that comes from owning and maintaining such a property:
- Do I want to make an immediate profit from such an investment, or am I more concerned about long-term growth in the value of this property as part of my estate? Do I have a time horizon on this investment?
- How well do I know the area I’m thinking of investing in, and how much time will I have to monitor my property myself?
- Do I like dealing with full-time or part-time tenants (if this is a vacation property)?
- How would I feel if appreciation slowed or the value of this property actually dropped for a specific period of time?
- Am I ready to handle the debt involved in owning this property? Do I have a plan to reduce this level of debt?
- Am I ready to treat this as a business?
In addition to all the information you must know to become a successful real estate investor, it helps to know yourself first.
If you plan to get into the short-term real estate investing market, know what the pros do—it’s better to be sitting on cash than debt. Cash allows you the flexibility to function in all markets. Counting on someone to loan you money in a tight market requires the kind of relationships with lenders that only experienced investors have. Don’t make the mistake of thinking it will be easy for you your first time, particularly in a tough market. A wrong move could be financially devastating.
But if you don’t have cash, do the following cautiously:
- Establish mortgage credit. People with good credit records can get a hearing from banks and mortgage lenders for most properties four units or less. If you plan to live in the property while you fix it up and rent the first units, you might be able to get a loan for up to 90 percent of the purchase price. Larger buildings and other commercial properties are handled through commercial lending departments, and your preparation will have to be different.
- Team with partners. If you can’t afford a property by yourself, work with a friend, family member, or other trusted partner. If both of you put up equal amounts of money and equally participate in managing the property, you will both be entitled to half the income in appreciation. Make sure you split up the work and financial responsibility equitably.
If you are interested in getting involved in real estate investing, White Sands is always looking for private lenders. Contact us today to find out how we can work together.