Build your Real Estate Portfolio with Investment Property
by Ed Kunkel, Jr., Realtor® and US Army Veteran
The practice of buying Real Estate as an investment is just as important and necessary now as it ever was. Taking the right approach to investing will equate to a continuous income stream to help secure your retirement. There is no other safe investment out there that compares with the ability to leverage your money and help you realize financial freedom like owning Real Estate. The housing market is most volatile to the unprepared, so be careful in your choices, and always seek the help and advice of a professional.
Real Estate Investing is not a Get-Rich-Quick Scheme
Educate yourself for this venture. If your intent is to get rich quick, investing in Real Estate is probably not for you. If it were easy for people to get rich quick by buying and selling investment homes, wouldn’t it be just as easy to get poor quick? Any market that shows signs of rapidly fluctuating value and income streams is considered a volatile, risky market.
Slow and steady wins the race when investing in Real Estate, and the best advice to gather is to take the time to know the market you want to invest in. Knowing your market involves knowing your past, and present value trends. Additionally, you will want to understand what outside influences affect your market.
Come Up with a Plan
Are you going to buy, sell and exchange over time? Or, are you going to be content with just owning one or a few investment properties? Do you have a financial planner or advisor to help you analyze your plan? If not, my recommendation is to interview and hire one first. A good financial planner can help you with minimizing your risk when you buy investment property. Buying investment property can come with emotions and excitement, which is all the more reason to have a professional involved to keep you in check about the rationale of your decision.
Unless you have a trusted relationship with a Real Estate agent already, I would recommend that you ask your financial planner to refer you to one when you have mapped out a plan and are ready to take the next step.
What Kind of Property?
What kind of investment property should you buy? If this is a new venture for you, start small. You may have the means to buy something big, but do you have the experience to manage it? For a new investor, I also recommend that you have a good understanding of the subject property’s resale ability when buying – as you may decide from the experience that this venture is not for you.
Duplexes seem to have a certain appeal to new investors as a low risk option, and oftentimes they choose to reside in one side while managing a tenant in the other.
Vacancy Rates
What is the trend for vacancy rates in the area? This is another important question to ask. You may want to meet with a property manager in your market area to learn more about their experience, and how to minimize your risk of a prolonged vacancy. This would be a good referral source from your financial planner. Additionally, you should consider hiring a property manager as a means to help you minimize your vacancy rate. The need for rental income to make your venture worthwhile can cause you to make business decisions out of panic and haste. Property managers will be more objective when it comes to screening tenants, collecting rent, and evictions.
Rental Income that Goes Back into the Property
Know your numbers. Success with owning investment property is realizing that your net worth is rising, while your cost and risk are trending downward. In order to realize that success, you have to know what percentage of your rental income needs to be directed to your expenses. A good rule of thumb is to plan for 50% of your rental income to be used towards expenses and savings for regular maintenance and emergencies. You will want to have money in reserves to cover the cost of broken appliances and other emergencies that are not necessarily normal wear and tear. The more carefully you watch your numbers, the better understanding you will have of your financial picture moving forward.
What if you Need to Sell?
What would it look like if you needed to quickly sell off your investment property? This is why you start your purchase with the end in mind. If you have a mainstream property, such as a newer or well upgraded duplex that easily appeals to investors and renters, it will make your prospect of selling much easier, whether you needed a quick sale or not.
Conversely, if you were to buy an older home converted into multi-family with varying amounts of rental space, that property would be much more challenging to sell. Knowing that you could sell your investment property quickly if necessary is part of analyzing your level of risk, you should have an exit strategy.
I can offer you a referral for a sharp financial planner in many parts of Western Washington, send me an email with your inquiries to Ed@YourNextMoveTeam.com and thanks for reading!
Ed Kunkel, Jr. is a Managing Broker/Realtor® at Keller Williams Realty in Olympia, Washington. Visit Ed here. Ed’s Military History: Veteran – U.S. Army and Air Force Reserve; Highest rank, E5; 11 years combined military service.
