My friend, Darrell, is one of the most ambitious and accomplished people I know. He’s finished several marathons, is an expert golfer, cooks like nobody’s business, and coaches his boy’s football team. He does all of this in addition to working long hours with a finance firm downtown. His work ethic, self-confidence, and sheer ability to prioritize his time never cease to amaze me. But, when he asked me whether he should buy investment property or not, I joked about where he expected to find the time. As it turns out, he was about to have a lot of extra time. He was quitting his corporate job.
Why Not Buy an Investment Property?
For many new real estate investors, buying that first investment property can be nerve-racking. First, you’ve got to know how to find a great investment property. Then, you’ve got to decide what to offer, how to renovate, and when to sell. If you’ve never done it before, and you don’t have the best training, connections, or tools to get you started on the right foot, the prospect of failure might overshadow your potential to succeed.
But, assuming you’ve received an education in real estate investing with a reputable company and work with real estate investment analysis and valuation methods like those used by HomeVestors® franchisees, you’ll find your chances of success–and confidence level–greatly improved. Then, it’s really just a matter of deciding to take the leap. And, like I told Darrell, there are certainly reasons why you should.
First, investing in real estate is one of the smarter, and safer, ways to diversify your investment portfolio. The real estate market is not typically tied to fluctuations in the stock market and real estate tends to appreciate over time even with normal ups and downs. Ideally, rentals also generate a monthly income once all the bills are paid. So buying and renovating properties to hold are a solid strategy to mitigate your overall investment risk.
Purchasing properties with the intent to sell for a profit after a rehab is an even stronger investment strategy. This strategy has the potential to produce bigger returns on an investment in a smaller amount of time. I prefer buying distressed properties to renovate and sell because it gives me the opportunity to become an expert on one or two transitioning neighborhoods at a time. It’s also a better bet on market certainty than buy-and-holds because of the shorter time horizon.
Even more, buying an investment property can be your entry point to starting a career in real estate investing. Whether you’re currently thinking about doing it part-time or full-time, after successfully buying that first property, you’ll probably find it difficult to work for anyone else again. There are few things better than being in charge of your earning potential and never having to worry about salary caps. As a real estate investor, how hard you work and how much you make are up to you. I sometimes joke with Darrell that I work harder than anyone I know, but I’m working in a field I love and that rewards me for my efforts.
Potential Risks of Buying Investment Property
It’s important to keep in mind, however, that part of the hard work of becoming a professional real estate investor includes accurately calculating the numbers every step of the way. From the moment you buy to the moment you sell, and everything in between, you’ve got to make sure the price is right. If renovation costs get out of control either because you miscalculated, didn’t perform an inspection, or worked with unlicensed professionals who botched the job, you put your returns at risk. If you hire an uninsured contractor and an accident occurs either to the property or another person, and you’re held liable for damages, you also put your returns at risk. As best as you can, you want to take every available precaution to ensure nothing eats into your ROI, right down to buying real estate investor insurance to protect your property against flooding, natural disasters, and vandalism or theft.
If your intention is to hold on to the property for a while, whether it’s a single-family residence or a smaller multi-family building, you run the additional risk of losing your monthly income stream if the unexpected happens. Prolonged vacancies, expensive maintenance and repairs, and problems with tenants each cost you time and money. Of course, you want to be careful not to overextend your spending, but you also don’t want to spend all of your time fixing the kinds of issues a problem property can create. So, consider hiring a property manager for your rentals, even if you only have a handful of units. Hiring someone else to handle the details so that you can concentrate on your investing business will save you time and a lot of headaches.
It’s also well worth your time to think about working with a real estate investing franchise. Having reasons to invest won’t necessarily increase your chances of doing it successfully. But working with an established team just might. In my experience, getting your career, and confidence, off the ground and running right happens faster, and with less risk, than doing it alone.
Find the Time, and the Team, to Do it Right
The “We Buy Ugly Houses®” team at HomeVestors®, in my opinion, is by far the best around. When I became an independently owned and operated HomeVestors® franchisee, my work as a real estate investor hit the fast track and quickly became my career. Long after my training ended, my Development Agent helped me keep things running smoothly–even when I almost got in over my head by offering on my first, and thankfully last, money pit. And, because I have access to some of the best marketing tools for investors that help to bring motivated sellers to me, I never run out of reasons, or opportunities, to invest.
You’ve probably guessed that, soon after our chat, Darrell contacted HomeVestors, became a franchisee, and confidently bought his first investment property. He’s just that kind of guy. If you’re looking to increase your investing confidence, there’s no reason you shouldn’t call too.
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