Here’s what you should consider before investing in real estate:
1. Who? You must decide whether you’re investing on your own or bringing in a partner. You may not want any exposure or to passively invest in real estate. An alternative option is to invest in a real estate investment trust, such as a mutual option.
2. What? Many of our clients want to invest in something they’re most familiar with—usually either a condo or house. However, buying a multifamily property (e.g., a triplex or quadplex) often brings a better return. There are many types of properties and asset classes to invest in, and over time you may become successful and learn enough about investing to perhaps invest in something larger, like an apartment complex, office building, or commercial warehouse. It all boils down to what you’re comfortable with.
Keep in mind that when it comes to condos, houses, duplexes, or four-unit properties, the buyer is the one who qualifies for the property. If the property involves five units or more, such as an apartment or commercial building, the property itself has to qualify.
3. When? When do you want to acquire your first property? How long do you want to own it? Look at your horizon and see how your schedule fits. If you want to buy a fix-and-flip, that process can last anywhere from three to 12 months. If you want to buy a property and use it as a long-term rental, you’ll have to factor in the time and cost of remodeling. In our experience with fix-and-flips, if the property doesn’t sell at the target price, we use it instead as a short-term rental until the time is right to sell it.
4. Where? We’ve found that most people are comfortable where they are, but the returns are greater in areas you may not consider living in yourself (or even out of state). You have to find the right balance between your comfort level and profit objective. If you’re considering investing out of state, we have several out-of-state associates who can help you acquire and manage your property.
5. How much? This is arguably the most important consideration to make. After all, you need the capacity to purchase a property. With most properties that have four units or fewer, you’ll have to put about 25% down to buy. For commercial property, you’ll have to put down between 25% and 30%. The Small Business Administration does offer a loan that allows you to qualify for up to 90% of the property’s price.
These factors are just scratching the surface of what you must consider when investing in real estate. If you’d like to know more, get in touch with my team and me and we’d be happy to schedule a free consultation to discuss your short-, intermediate-, and long-term objectives. We’re passionate about helping our clients achieve their long-term goals, and we can do the same for you. If you have any other real estate questions, feel free to reach out to us as well. We’d love to hear from you.