Investing in real estate can bring in good profit, but it’s not for everyone. Before you get into this highly rewarding and challenging undertaking, you need to make sure you’re truly prepared for it.
How do you know you’re ready to make a real estate investment? Check out these signs:
- You have the financial ability to invest
Investing in residential or commercial real estate often involves a large upfront payment, typically a down payment of 20%. If you’re not willing or able to pay the entire amount out of your own pocket, you can enlist partners or investors who can help finance the transaction.
In addition to the initial investment, you also need to consider your financial standing. When it comes to real estate investments, it’s wise to plan on having zero income in the next six months. Do you have enough savings to let you live comfortably even without getting income from your investment property?
Additionally, consider possible rental fluctuations and what that could mean to your finances. Keep in mind that you need to spend on operating expenses, including repairs and maintenance, regardless of the income you make. Make sure you have enough cash reserves to cover your expenses despite unexpected events.
- You have great credit
Lenders typically have more stringent requirements for investment properties than for primary homes. You will need a good credit score to get approved for a loan. Lenders will also look closely into your debt-to-income (DTI) ratio. They’d want your DTI to be low, specifically, not exceeding 36% regardless of the number of properties you own. If acquiring an investment property raises your DTI, getting financing for it can be more of a challenge.
- You’re in it for the long haul
It typically takes a long time before real estate investments become profitable. In many cases, significant profits come only after the mortgage has been fully paid. Crunch the numbers to have a good idea on when you can realistically expect to make a profit and how much you can make, then ask yourself if you’re prepared for this kind of long-term commitment.
You also need to have clear goals about the property. Do you intend to make it your primary residence in the next five years, then convert it into a rental? Or are you looking to live in your rental property in the future? Factor these goals when making your plans for the property
- You know the neighborhood you want to buy into
It’s ideal to make your investment in the area where you live. You already know the place and its best features, as well as its not-so-stellar attributes.
If you’re investing in a different location, choose one where people would want to live or stay, including yourself. Look into safety, nearby amenities and attractions, accessibility, and other features that people consider when selecting a community. Additionally, look into present or planned developments that could affect the value and desirability of real estate in the area.
- You’ll be working with a Realtor you can trust
Investing in real estate can be more complex than buying a home for your own use. It’s best to work with a professional who can guide you through the process and provide you with everything you need to make well-informed decisions.
The Sherry and Maria Team are your go-to agents when it comes to investing in North Atlanta real estate. Find out how we can be of help to you. Give us a call at (678) 548-5513 if you’re buying or (678) 283-1710 if you’re selling.