Things To Consider Before Becoming A Real Estate Investor - Part Three

We are knee deep into our series on this this juicy topic! On last Wednesday’s Blog  Post, we covered questions such as, “What are some tips on negotiating?” and, “What  are some short term and long-term goals to keep in mind with your real estate  investment business plan?”.



Today, I present to you two more deep dives on things to consider before becoming a  real estate investor:



 

5. Is it more profitable to manage a property on your own, or hire a property  manager?

If it's a single-family home or anything up to a four-unit property it will be much more  profitable to manage it on your own. Good property managers do exist but can be  tough to find. Property maintenance and unexpected repairs can eat up cash flow at an  alarming rate, especially when you pay a premium via a property manager to handle  these expenses.



If it's a larger commercial property (5 or more units), you may find it too time-consuming  to manage yourself and a property manager will be a requirement. A vacancy rate and  property management fees should be included in your real estate investment business  plan when working out the carrying costs of these properties.



Also, as a beginner, it's very important to understand how to manage a property  successfully yourself. The experience you gain managing a small residential  investment property will be invaluable to you when you do eventually hire a property  manager because you will have an intimate understanding of how the property should  be run.


 

6. In your opinion, what is the most sound type of real estate investment? (ex.  Flip, buy-hold-rent, etc.)

A positive cash flow buy-hold-rent property is by far a superior investment. Although  "flipping" homes sounds fun and looks sexy on TV it is more like speculating than investing. When you flip a property, you try to buy it for one price hoping that someone  else buys it from you for a higher price in the future.



Even if you put some great improvements in the property, you'll have mortgage  payments and renovation costs during the time you hold it. If the market changes  during this time you could be left holding the property much longer than anticipated.



Each month that you hold the property with money going out to cover carrying costs and  no money coming in you will gradually turn into the classic "motivated seller" other  buyers are looking to take advantage of.



Also, when flipping properties, you usually have to deal with contractors and suppliers.  You can end up turning yourself into a project manager instead of an investor. It can be  more like creating a new job for yourself than anything else. Calculate how many hours  you will spend on flipping the property and then divide it by the expected profit after  taxes, real estate fees, legal fees, mortgage payments, insurance, mortgage payments,  property taxes and insurance. If the number comes out lower than expected don't be  surprised. You wouldn't be the first person who figured they could have made more  money with less stress flipping burgers instead of flipping homes!



A sophisticated real estate investment business plan is looking to build an asset base of  cash flow properties. They invest their money and look for a good return on their money  quickly. They are generally not "flippers".



True investors look to buy and control assets. Look at Warren Buffet, he buys enough  shares to control a company. He then uses the cash flow of the company to make other  investments. A buy-hold-rent strategy is very similar. You are buying the property to  control the asset and then direct the cash flow to your own benefit.



If you do decide to flip you must purchase well below market value. You will likely go  over any budget you set. Check your numbers and then have a mentor review them.




If you or anyone you know is thinking of becoming a real estate investor, give me a call  and I’ll review what’s involved and answer any questions you may have. Investing in  real estate is a time-tested and great way to build wealth! Call me at 905-683-7800.





 

Thanks for reading today’s BLOG!!!

Brian Kondo
Sales Representative / Team Leader
The Brian Kondo Real Estate Team
Re/Max Hallmark First Group Realty Ltd.
905-683-7800 office
905-426-7484 direct
brian@briankondo.com
www.BrianKondo.com
www.BrianKondoTeam.com

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