Overcoming the Fear of Real Estate Investing
The fears associated with the risks of real estate investing are unsettling enough to cause many potential investors to ignore investing altogether and therein maybe to pass on some good real estate investment opportunities.
Fair enough, because there are valid reasons to be concerned. Just ask any novice investor who took the plunge with the highest expectations only later to become an unfortunate victim of a horrible outcome.
Still, we mustn't throw the baby out with the bath water. Yes, there are risks. But there are also literally thousands of novice investors who had little or no experience that went on to make lots of money in real estate.
In this article I want to address five common fears that typically plague potential real estate investors. Hopefully it will help you to become less anxious about investing, and maybe enough to get you to reconsider the idea.
1. Negative Cash Flow
Cash flow is the amount of money that remains at the end of the month after all the rent is collected and the property's operating expenses and mortgage is paid.
Although it's impossible to accurately forecast unexpected increases in vacancy that might occur later and take a bite out of your rental income, nonetheless it is possible to lessen the chance of negative cash flows by carefully running the numbers before you make the investment .
Your first step is to obtain the rental property's last twelve months income and operating expenses from the current owner. Your second step is to validate that the rents are comparable to similar-type rental properties in the area, the vacancy rate is in line with the market, and the operating expenses indicated are realistic.
Bear in mind that the current owner might be collecting higher rents at a lower vacancy rate and paying less for operating expenses than is realistic. Not collecting a security deposit could account for the higher rents and lower vacancy, for instance, and doing all the repairs himself might be the reason why the operating expenses are skewed.
Finally, once you're sure that the income and expense data is reasonably accurate, plug in your mortgage payment and compute the cash flow to ensure that it's positive.
2. Not the Right Time
One of the proven benefits of real property is that it has a profound record for steadily appreciating and historically increases in value over time.
Therefore, if you're given the opportunity to make a sound real estate investment that you can afford without putting undue hardship on your family budget (and our country is not plunging into a depression) than it's likely the right time to start investing.
3. Loss of a Nest Egg
Yes, real estate investors have been known to lose their savings on duplexes, apartment and office complexes, land and other real estate investments. It happens. Moreover, there's no guarantee that it can't happen to you.
But you can greatly mitigate the risk by developing an investment plan with some degree of knowledge. Turn to the investment seminars, books and real estate experts to learn about your desired rental property type and its surrounding market area before you pull out your checkbook.
4. The Hassles
Sure, dealing with tenants and repairs can be frustrating. But if you include a cost for reliable professional management in your initial real estate analysis and can justify it, then let a professional deal with the day-to-day operations and fuss, and spare yourself the stress and hassle.
5. Lack of Experience
Okay, because you're new to real estate investing you certainly do lack experience. But you do have resources at your disposal to offset this.
I already suggested a degree of study and research earlier. Let me also suggest that you interview a couple of real estate agents in your area who specialize in investment property and then select one you are comfortable with to assist you.
There are no certainties in life, and making an investment in real estate is not a guarantee that you will enjoy the same success as others. But if you do your homework, maybe solicit the help of some qualified professionals, and remain patient enough to wait for the right opportunity, you should do fine.
Here's to your real estate investing success.