Could Buying Real Estate Be The Ideal Investment For Me?

If you’re wondering whether you should start making investments as a way of financial planning for your retirement, you might be considering your available options.

More people than ever before are keen to enjoy a FIRE (financial independence, retire early) lifestyle as they get older, with financial independence that allows them to retire early. With this in mind, looking for the best ways to accumulate money is imperative. However, before you start researching dividend growth rates or dividend reinvestment plans so you can live off your dividends in your retirement, it might be time to consider a different investment path.

Real estate can represent an investment option depending on your financial situation. Buying real estate potentially you to generate passive ongoing income and generally, the property’s value increases with time. In fact, it can be an effective part of an overall wealth-building strategy.

Am I Ready To Invest In Real Estate?

Although buying real estate can be a great way of protecting your finances in the future, you need to be ready to begin making the investment. For a start, you’re going to have to put down a large sum of money upfront. Purchasing land or a home can be costly, and that’s before the maintenance costs are figured in, together with the possibility of income gaps should you struggle to find a new tenant when the previous one has left. If you’re serious about making a real estate investment, here is some advice to help you make an informed decision.

Financing the Mortgage

A lot of financial experts are keen to tell potential investors that they should never borrow money to make their investment. This is something to keep in mind before buying real estate for this purpose. If you’re unable to pay in cash, you should at least be able to afford mortgage payments on it, even without the rental income you’re expecting to receive.

There can be a high turnover of tenants, and you’ll probably experience times when no renters are in your property. If you’re unable to afford the payments with no rental income coming in, your investment won’t build wealth, it’ll be a financial burden. More importantly, it could even damage your credit status, costing you more money in the long-term.

Planning Your Expenses

If you’re buying real estate as an investment, you’ll need to bear in mind the cost of repairs, upkeep, utilities, and taxes. It’s often easier to use a rental company when it comes to handling things like rent collection and arranging repairs, but this costs you more money, despite the fact that it reduces your burden.

Your property will, therefore, need to be priced for rental to cover all those fees and expenses in full. You should also ensure that you set aside the first few months of money to cover repair costs that are sure to arise in the future. It goes without saying that you should also have the property insured and have a sinking fund in place to deal with any other situations and additional costs as they crop up.

Researching the Neighbourhood

If you’re buying land to sell later you should carry out thorough research into its land deed. Find out whether new roads will be built near the land and how that could affect its value. Check whether there’s a lien on the property, and look at comparable properties in the same neighbourhood. You should also consider whether it is or will be an up-and-coming area. It’s only by doing this kind of comprehensive research on the surrounding area that you’ll be able to make the right choice about whether this land or property is right for you.

Starting Out Small

A number of beginner investors in real estate start out by buying a house with an attached basement apartment or a duplex so they can live in one of the units while renting the other out. This is one of the best ways to dip your toe in the water of real estate investment, but you’ll need to be comfortable with the idea of living in the building alongside your tenant. When you’re more comfortable with managing your investment property, you could consider purchasing a bigger property that has more potential for income. Once you’re the owner of several properties, you’ll find that it becomes simpler to manage and buy even more and, so, earn more returns on those investments.

For real estate investors in the U.S. considering a real estate investment but without actually managing properties, consider crowdfunding options such as Roofstock or  Fundrise.