Like most big decisions, there are pros and cons involved. Sometimes, it even helps to make a list of each so you can see clearly what the correct path is for you to take. Another approach before embarking on a new venture is to ask yourself questions to make sure that you’re fully prepared.
If you are interested in investing in real estate for the first time, there are many pros and cons. If done successfully, the pros of investing in real estate include earning passive money on the side. You can practically build your wealth without having to do too much extra aside from your current job. Building a robust real estate portfolio can give you lifelong security as a backup nest egg for your future.
There are many cons, as well. It’s important to know exactly what you’re getting into. Having a general sense of the real estate process is the minimum requirement. Once you commit to purchasing a property, you also need to know what the other costs will be.
One good question to ask yourself is whether you can afford to put money up-front without having to take out a loan. If the answer is no, then you aren’t ready to purchase a property yet. It will be quite some time before rental payments come in, so you need to be prepared to lose money before earning it. How much are you willing to invest? You will need to leave some in the bank for savings or an emergency fund. Some people even have a separate sinking fund, as a backup for their emergency fund.
Another question to ask yourself is how you will deal with the lapses in time between tenants. There will be times when rental units are just sitting there, unoccupied. In those cases, you are still responsible for maintaining the property and buildings so that it’s appealing enough for the next renter.
You should also ask yourself how you want to handle the logistics of dealing one-on-one with the tenants. Do you have enough money to hire a team of professionals to handle maintenance issues and rent collection? If you have no property management experience, you will want to keep your tenants happy by hiring professionals. It will cost you money to hire a company to manage your property, but it can also save you money long-term by lowering your turnover and letting you maintain your regular full-time job.