Whether you consider yourself a real estate investor or simply consider yourself a homeowner, many people find that homeownership can be a jumping-off point for considering their home beyond a primary residence.
In fact, some military families initially purchase their homes to live in during a duty assignment but realize soon that upon PCSing, they can rent out their homes at a profit and end up creating a favorable long-term investment through leveraging their home. Some continue to do this throughout their careers and by the time retirement rolls around, they have a well-rounded portfolio of multiple homes that have paid down mortgages through the use of renters’ paying monthly rent.
Before you jump into being a long-distance landlord or think that this scenario is a sure-fire path to wealth, consider these three pieces of advice based on the wisdom of real estate investment professionals.
Get to Know the Market
Sacha Ferrandi, Founder & Head Principal, Source Capital Funding and Texas Hard Money says that it is vital to get to know the market in your area. “When investing in real estate, it is important to learn about and become an expert in your selected market. Being well informed on the current trends, including any decreases or increases in the average rent, income, interest rates, and even unemployment/crime rates will allow you to recognize the current market status and plan for the future.”
Military families who may be more unfamiliar with long-range trends in their military towns should look to the expertise of trusted real estate professionals to get informed. It is wise to take a three to five-year snapshot of rent rates, average days on market, and overall property values in an area before deciding on an investment property. Each of these factors directly correlates to supply and demand and will have a great impact on the success or failure of your investment.
Get to Know Your Numbers
It cannot be stated enough how vital it is to know the ins and outs of not only your own personal expenses but also any forecasted expenses associated with owning an investment property. Are you accounting for taxes, repairs, updates and replacements, vacancies, and more?
According to Stessa.com, “The 50% Rule states that normal operating expenses – excluding the mortgage payment – for a rental property can be estimated to be about one-half of the gross rental income. If the gross rental income is $1,000 per month then the estimated operating expenses could be $500 per month.”
Many people interested in being in the business of investment real estate under-estimate the costs associated with owning a home and renting it out. It is important to ensure that you have the margin in your own budget to cover these costs. Many investors don’t see month-to-month profits for several years when owning an investment property.
Get to Know Your Network
The final piece of advice may be the most important. Get to know your network. When you are investing in real estate, particularly as a long-distance investor, it is crucial that you have a wide network of professionals to come alongside you on your journey. This list may include your mortgage lender, your real estate agent, a property manager, your accountant, an attorney, as well as a team of contractors that can address any damages, repairs, and general fixes the property may need.
It has been stated, “Your Network is your Net Worth.” If this is true, then building the right network is an integral part of getting started as a real estate investor. According to NuWire Investor, there are four main advantages of the all-important real estate investment network: they offer good ideas, guidance and support, knowledge of the local property market, and access to new business opportunities.