Investing in real estate seems simple enough. All you have to do is find a multi-family building, buy it, fill it with tenants, and the money rolls in, right? Although the process seems fairly straightforward, managing a real estate investment can be quite intricate and complex.
What You Need to Know About Real Estate Investment Management
Like any big decision, you shouldn't blindly hop into a real estate investment. You should safeguard your money and only investment in real estate after careful consideration and research. Buying a multi-family property without knowing the maintenance of the investment can be detrimental to your financial situation.
- How you can derive profit from a multi-family property: The most important aspect of a multi-family building, or any real estate investment really, is the amount of cash flow that will be generated by the tenants. Adding certain services/amenities to the building over others will increase its value and allow investors to increase the rent, too. Similarly, the same can be said about certain renovations. There are several more ways that a multi-family building can generate additional income such as using extra space for advertising and installing a coin operated laundry.
Sometimes, if investors choose to sell at the right time, they can also make more money when they cut a multi-family property out of their investment portfolio from appreciation. Appreciation means that a property will increase in value over a long period of time, often several years. However, investors should never depend on appreciation to make more money as it can be uncertain.
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- Always have a slush fund: There are some things you just can't plan for no matter how hard you try. Investing in a multi-family home isn't cheap; not only is there many upfront costs, but investors also have to budget for maintenance expenses and other unexpected costs. Plus, renting to individuals you don't know means there is a possibility that damage will find its way into your units. Repairing that damage can cost thousands of dollars depending on its extent. Having extra money set aside in a slush fund will help mitigate those extra unforeseen expenses.
- Know your personal limits: Being a landlord isn't an easy job, especially when you own a multi-family property. Landlords have to be available to handle tenant issues no matter what time of the day. Refrigerators can stop working, furnaces can quit, and drains can plug. It also helps reduce expenses if you're on the handy side and know how to fix minor plumbing and electrical problems. Before you buy a multi-family building, you need to be realistic with what level of landlord responsibilities you can handle, if any. If you aren't comfortable responding to these requests, you need to look into a property management company. A property management company such as Braden Equities Inc. can help investors properly manage their investment, look after tenants, and take care of daily operations.
- Know how different mortgages can affect your multi-family investment: Understanding mortgages and choosing the most appropriate one is critical to the success of a multi-family building. Most banks require at least 20% down for a rental property. There are several types of mortgages to choose from, each with their own risks. Fixed rate mortgages, balloon mortgages, adjustable rate mortgages, etc. all have pros and cons. Learn about which options are available to you.
There's a lot to learn when it comes to real estate investment maintenance. Potential investors need to carefully research what it takes to maintain a real estate investment and realize what they can personally handle as a landlord.