Have you considered real estate investing? If so, now is the right time.
Consider these pros and cons.
- You have direct control of your real estate investment.
- You receive monthly income from tenants.
- Your investment property is an asset and a fulfills a basic need.
- You receive tax benefits.
- Your investment is insured.
- Markets can be fickle; you have no guarantees.
- Most people have to be landlords as well as investors.
- Securing financing can be tough for pure investments.
- Cash flow issues can arise when you have vacancies.
- You need to know lots of details up front, including mortgages, titles, insurance, negotiation, finding the right investment property, etc.
Deciding whether real estate investing is right for you can be daunting. Here’s a Primer of helpful advice that will get you thinking.
Decide Which Type of Investment Properties
There are several types of investment properties you can consider, including single-family homes, commercial and retail, hospitality, and multi-family apartments. We believe B-grade multi-family properties provide the best balance of risk/reward (this webinar details why), but you have to decide what’s right for you.
Research Financing Options
Since credit remains tight, your first step might involve researching financing options.
You also need to look into multifamily interest rates, which will be higher for investment properties than for primary residences, as well as local tax rates, insurance costs, fees or maintenance expenses that might be associated with the property. If you plan to rent out your property, check local vacancy rates and the average length of time rentals remain vacant. Be sure to look into the tax benefits for investment properties, which will offset some of your expenses.
Look at Local Trends
As you start your property search, remember that local trends are important–not national ones. Property values and rates of appreciation vary dramatically from one neighborhood to the next, depending on the local job market, supply and demand, schools and many other factors.
Learn From Others
Don’t be afraid to take a seminar or class to learn more. Real estate investment is a long-term commitment so it’s important to get all the facts before diving into the market. Consider Multifamily Partner Program, our flagship training program which has led to over $130M in student multifamily deals in the last two years.
Consider Investment Value
Borrowing money for real estate is a serious commitment, and financial institutions are more stringent about loaning for an investment property than for your primary residence. However, there are significant tax benefits for owning investment property.
If you hang onto a property long enough, it will eventually appreciate in value, but, it’s possible that your investment property could lose value or take many years to appreciate. Historically, long-term investors have seen an average annual (unleveraged) rates of return between 5% and 9% on property investments. Look at how much you can realistically tie up in real estate while waiting for that eventuality.
Are You Ready to Be a Landlord?
Being a landlord isn’t for everyone, and you may run into cash flow problems if you have extended vacancies or tenants who don’t pay their rent on time. Don’t forget to consider ongoing expenses for maintenance and repairs too.
37th Parallel Properties Teaches You the Real Estate Investment Process
Over the years, 37th Parallel Properties has invested in various properties including single-family housing, commercial and retail, hotels and hospitality properties. And we share that it wasn’t until we hit upon multi-family apartment investing that our portfolio really took off, resulting in over $81 million in assets under management in just a few short years. Now we want to share what we learned along the way to help others become successful real estate investors too.
To learn more about commercial multifamily real estate investing, download your free copy of Evidence Based Investing.
Excerpts from Business to Consider: Real Estate Investing, by Brenna Fisher, Success Magazine.