There’s no doubt that the real estate market is a hot one, with short sales, cheap foreclosures, and other unrivalled deals and opportunities. This may very well make you stop and wonder if real estate is right for you, but it is important to note that owning and managing real estate requires considerable effort, energy and time.
Take for example, if your kids overflowed the bathtub, which can happen with tenants as well. And just as you fixed the issue when it occurred with your children, you will have to resolve the issue for your tenants as well, it is expected under the law that you take responsibility for it.
If you do not handle the issue appropriately, it may very well lead to bigger and more expensive problems. You may feel that commissioning a property manager with put your wealth building asset on autopilot, but fact is that the more you’re involved, the greater the chances it will be a profitable experience. This positive outcome has roots that begin before you make the investment. It requires that you do the necessary research, homework, and analysis to locate properties that are potentially great investments.
Getting Your Feet Wet Or Drowning
Owning real estate requires as much hard work as a 9-5 job, and there are a few questions to ask yourself starting with if you have the time to manage your property? And if you feel that managing real estate is a piece of cake, ask around because that’s far from the truth. There are several issues to expect with rental properties including tenant problems, water leaks, neighbors, etc. and you as the owner will probably have to deal with them. So does that sound like something you can handle?
Regardless of the type of investment, before you make one you need to educate yourself on if it is worth getting into. There are just too many people who invest in real estate in the hopes that it will be worth a lot more in the near future. Hoping something will go up in value does not make you seem confident about your investment therefore it is highly unlikely that you will be successful.
Seasoned property owners do not even consider the appreciation of value when making a real estate investment, but rather focus on buying properties that will bring in positive cash flows each month. And fact is that most properties are not good investments such as prime locations, beach houses, luxurious downtown condos, etc. In a few instances, these may be negative cash flows for several decades before you or your grandkids see any positive cash flow.
Return Versus Risk
There are some very enticing instruments such as corporate bonds, securities and other financial long term and low risk investments, ones that pay out an average of 4-6 percent per year. So even if you receive positive cash from your real estate investment, a 1 percent yield in an extremely illiquid asset isn’t very appealing, is it? You need to invest in properties that bring in better cash flows, and that is not easy.
If you plan to invest in real estate for a short period of time such as 3-6 years, drop the idea. The chances of you earning a sizable return from short-term ownerships are slim to none. Some people however do get lucky, but you will in most cases not fall in this category of individuals. If you have short-term goals, you will better off skipping the idea of real estate ownership.
So if you’d like to add real estate to your investment portfolio, and you can do the proper homework, invest in great cash flow properties and manage them for a long time, then real estate is an excellent choice.