5 Things to Consider if you're interested in becoming a Real Estate Investor
For many, investing in real estate is appealing, especially in hot markets. Oftentimes it’s a great way to diversify a portfolio or to make sure you’ve always got a place to stay when you’re on vacation. So if you’re in the market for an investment property, here are a few things to consider before you decide to pull the trigger:
1. Consider the Time Investment: If you’ve ever watched Flip or Flop on HGTV or a similar show, they make the process of finding a property, fixing it up, and reselling look like a breeze. The reality, however, is that each of these steps in the process is time consuming. Depending on your investment goals, it’s important to consider your time involved with finding the perfect property and either managing it as a landlord or managing a renovation project. While we all know there is a lot of potential in several Texas markets to turn a profit, it’s important to calculate the personal time and investment it will take to make that happen.
2. Tax Implications: Real estate Investing has several tax implications that are important to consider, especially if you are planning to keep the property and rent or lease it out. Any rental payments that you receive are taxed at ordinary income rates. You’re also able to utilize front-end depreciation on your rental property to reduce the taxable amount. Before buying your first investment property you should consider talking with a tax specialist to understand the full financial and tax implication. For additional information, you might also want to check out this article from BiggerPockets.com.
Plug in some numbers and see where you stand. Estimate monthly payments, evaluate interest rates and calculate down payments with this simple tool.
3. Portfolio Diversity: One of the great things about becoming a real estate investor is the expansion of your investment portfolio. Real estate is one of the earliest forms of investing, and even pre-dates the modern stock market. It also has a psychological advantage as it’s an investment that you can see and touch.
4. Illiquidity: One of the challenging aspects of being a real estate investor is the inability to change your investment into cash quickly. Depending on the market, you may be able to sell your investment property with relative ease, but in most circumstances it would still take 30 days for you new buyer to close on the property and for the cash to be in your hand.
5. Tolerance for being a Landlord: If you are purchasing an investment property and are planning to rent it out, you’ll need to consider the investment it takes to be a landlord, or the monetary investment it will take to hire a property management company. It’s important to keep in mind that is there’s an issue with the home or rental unit, you’ll be the person that gets called.
A Sente Loan Specialist will be happy to schedule a call to answer any questions you might have.