Before you begin buying and managing rental properties, you need to decide whether you are financially ready to be a real estate investor. Probably the first thing you need to ask is what your long term financial goals are. Are you looking for positive cash flow? Are you looking for long term equity growth? Or, are you hoping to get both at the same time?
Cash Flow and ROI
One way to judge what your goals are is to consider what you’d do with $100,000. If you have $100,000 in a bank account, you’re probably earning a whopping 1 percent on that money. There’s a difference when you take that same $100,000 and buy a piece of real estate that earns you $1,000 a month. If there is no loan on the house, you’re earning 10 percent return on that same $100,000. That’s better than earning 1 percent. If you put 20 or 50 percent down, look at the rate of return. That will tell you if it’s a good deal compared to where to money is sitting currently; it gets you positive cash flow, and you always want that.
Equity and ROI
Real estate investors also make a lot of money on equity. This builds as a property ages, and the loan gets paid off. Remember that earning appreciation in the market can often take 10 or 20 or 30 years. But, if you have positive cash flow working with your long term appreciation, you’re doing well and you’re ready to be an investor.
Consider Your Local Market
Consider your market as well when you’re preparing to invest. Are the properties in your area being bought and improved? If so, your property will bring in more rent and increase in value. These long term goals need a serious look when you’re considering whether you’re financially ready to own and manage rental properties.
We’d be more than happy to help you find properties, analyze their potential, and manage your rental properties as well. Contact us at Stokley Properties if you have any questions, or you’d like to get started.
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