Investing in Real Estate
As you “channel surf” looking for something to catch your attention, I am sure you have stopped more than once to watch a TV program or infomercial about buying/selling real estate investment properties. The TV programs make the process sound so simple, easy and VERY profitable, but in reality, investing in real estate can have a much longer profit turnaround time. We all know someone who is financially secure and owns property investments beyond their own residence. If you are tempted to buy an investment property, here are some things to consider while making that decision.
First, let’s dispense with the easy part. The “flipping houses” reality shows and infomercials are not the real world. It’s very entertaining to watch TV personalities buy a property, miraculously survive the unexpected problems during the remodel and then reap significant financial gains from the sale of the property in a neatly packaged 30-minute segment, but actual “flipping” can take months or even years. Is it possible to lose money on these transactions? Would it be as entertaining if they lost $20,000 at the end of the show? Would you tune in again? Would you still be interested in buying real estate? Remember what your grandmother always said, “If it looks too good to be true, it probably is.”
Just because you can’t successfully make money in 30 minutes doesn’t mean that investing in income producing property is a bad investment. It is possible to generate additional revenue and also increase your net worth while a tenant is paying the loan and expenses of operating the property. While property values have seesawed in recent years, consider this from the Case-Shiller index. This index, sponsored by Standard and Poor’s (S&P Global Ratings), monitors home values in 20 metropolitan areas including San Diego. Despite the Great Recession (2007-09) when property values declined, the index states a home purchased in 2000 in San Diego has doubled in value in 2016!In general, most investment properties have increased in value significantly during the same period, making investing in real estate an excellent long-term opportunity.
If it’s time for you to consider buying an investment property, here are some key ideas to keep in mind.
- Be educated. The internet is a good place to start your research, but it won’t take the place of getting sound advice from an attorney, tax consultant or CPA and real estate agent. You need to know how you should take title, what are the tax implications, where the properties are in your price range, what is the vacancy rate in the area, and is there any new construction planned, just to name a few.
- Be financially prepared. An investment property isn’t much different than owning your home. Even though you are doing regular maintenance to prevent major repairs, something unexpected will happen. If you can’t fix the electrical or plumbing issue yourself, know who you will call, regardless of the day of the week or the time of day.You will need access to emergency funds to resolve the problem quickly.
- Be patient. Finding the right property for your circumstances will take time. Reaping the financial benefits will take even longer. Your real estate investment isn’t a neatly wrapped 30-minute reality show.
- Establish your involvement. Investment properties do not manage themselves. Are you going to lease the property to tenants? Are you going to respond to emergency requests when they occur? Are you going to collect rents from people not paying you? Do you know the procedure to evict tenants? The cost of hiring a professional management firm may be less than the cost of your education in managing your property.
- Get the right loan. Buying a rental home probably won’t be much different than the mortgage loan for your personal residence. However, loans for other property types can vary significantly. If you’re thinking of investing in multifamily properties (5 units or more) or commercial real estate, I suggest you consult with your lender before getting started to understand the loan and property best for you.
Investing in an investment property can provide numerous financial opportunities. At Mission Fed, we offer loans up to $10 million on investment properties located in Southern California. Our staff has decades of combined experience with all types of investment properties. See our website for more details, visit a branch or give us a call 858.524.2850. We’d love to help you get started and assist you throughout your real estate investing career.
The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. Mission Federal Credit Union disclaims any liability for decisions you make based on the information provided.
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