Everyone wants to call themselves a savvy investor, right?
However, we all must start from square one. Even the most successful investors out there started from scratch and worked their way up, and newbies should keep this in mind before the spend a dime on any sort of investment.
This is especially true in the case of property, which comes with its own slew of hidden fees and issues that many first-time owners tend to overlook. That said, rental property is perhaps the closest to a “sure thing” when it comes to consistent, well-paying passive income.
But that’s if and only if you’ve done your homework.
Don’t assume that your dreams of passive rental income will come overnight. Instead, ask yourself the following questions to provide yourself with realistic expectations about what it means to become a successful property investor.
Who’s Going to Manage Your Property?
The elephant in the room for many first-time investors is that they don’t understand the day-to-day legwork involved with rental property. Thankfully, those with the room in their budget for the various types of property management fees can take advantage of collecting rental income minus getting their hands too dirty.
Where’s the Location?
Maybe it’s cliché to say “location is everything,” but there’s no denying the importance of acknowledging how geography directly correlates with your ability to effectively manage and profit from your property. Consider factors such as…
- Whether or not you’ll realistically be able to play the role of landlord (think: is the property in your own backyard?)
- The current condition of the housing market where you plan on renting
- What rentals in the surrounding areas have gone for (and how they’ve been trending in recent years)
While you may obviously feel more comfortable with property closer to home, it may not be the best idea if your local market hasn’t been thriving.
Are You Willing to Deal with a Fixer-Upper?
Depending on your budget and construction skills, you may be able to profit big-time off of a home that’s in less-than-ideal condition. For example, you may be able to find a good deal on property that…
- Has been foreclosed on
- Was sold “as is” due to the previous tenants’ sudden need to move (think: death in the family or divorce)
- Needs some serious work and repairs
Each of these situations comes with their own set of complications; however, if you have the budget and patience to deal with them, fixer-uppers can result in major returns.
What Does Your Current Investment Portfolio Look Like?
When dealing with property investments, it definitely helps to have as much cash on hand as possible. If your money is tied up in stocks and other investments or your savings account is currently hurting, it’s probably not a good idea to deal with property at the moment. Given the volatility of the rental and housing markets, “better safe than sorry” is a good motto to live by.
What Are Your Long-Term Goals?
Simply put, investing is property requires you to look at the bigger picture. Do you want to invest in multiple rentals? Do you want to turn those rentals into your full-time income? Bear in mind that you can’t simply drop your investments and move on once the money starts rolling in. Don’t move forward with rental property unless you’re willing to deal with your commitment for the long haul.
There’s nothing more important the maintaining realistic expectations when it comes to managing your investments. Answering these questions is crucial to understanding whether or not property management is the right route for you.