How Investors Can Plan Ahead Before Purchasing a Real Estate Investment

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So, you’re interested in a purchasing a multi-family property to generate more income and supplement your retirement funds? That’s a wise decision to consider. Investing in real estate, if done the proper way, can be a financial goldmine for potential investors.

Investing a substantial amount of cash into a property shouldn’t be done brashly. If investors jump right in without first researching how to maintain an investment such as this, they’ll be in for a rude awakening that will involve a high level of stress. Save yourself from the long nights and stress-induced pains by planning ahead.

Big Questions Investors Should Ask Themselves Before Purchasing a Multi-Family Building

Planning ahead has never hurt anyone and it certainly won’t in this case either. In fact, asking yourself the questions below will prepare you, or maybe even open your eyes, as to what you need to think about and consider before becoming a real estate investor. 

  • What do you wish to accomplish with your multi-family rental property? Is buying a multi-family building the right fit for you? This question will require you to look far into the future and where you see this property in it. Do you want this investment property to be a hobby or a full-time job? Do you want to hold on to it for several years to gain capital appreciation? Pinning down exactly what you want to do with this property will help you make future decisions.
  • How far away are you comfortable being from the building? If you are planning to do repairs to the property yourself, you’re going to be driving back and forth from your rental property a lot. Therefore, you must think about how far away you want your building to be. Are you comfortable with driving 30 minutes each way to repair a leaking faucet? If not, you need to be looking at multi-family buildings closer to your current place of residence. If you aren’t planning to fix tenant problems yourself, you’ll still have to occasionally commute to the building to meet with your property manager and check up on the state of your investment. Gas and travel time must be considered.
  • How much will a multi-family property cost to buy and maintain? Having a purchasing budget and roughly knowing what costs you can expect for upkeep will give investors an idea of how much they need to set aside. Many banks require at least 20% down or even up to 25% when purchasing a rental property, so that’s one upfront cost. You’ll also need to anticipate your monthly expenses such as the mortgage payment, taxes, insurance, etc. with realistic numbers.
  • How do you plan to market your rental property? One of the biggest challenges for investors is combating vacancy rates and finding reliable tenants to live in their units. Marketing your building and available units will help lower your vacancy rate. Will you only rely on word of mouth (you shouldn’t)? Where will you advertise? How much will advertising cost? Do you know how to make your units appealing to your ideal tenants? Marketing is a must for multi-family rentals and needs to be well thought out.
  • How will you measure your success? Investing in real estate isn’t a short-term game; investors need to be prepared for the long haul. They also need to remember that purchasing a multi-family property is a business decision and has no room for emotional reactions. Because investing can be a long process, investors need to stay focused on their main goal. To keep your focus intact, set milestones for yourself to show you’re on the right track. Be clear about what you want to achieve whether it be a certain amount of income generated or a specific vacancy rate. Set a date to hold yourself accountable, and celebrate when you achieve it.
  • What is your exit strategy? Investors may buy a multi-family property thinking they can handle it. Sometimes this isn’t the case, and they may want to get out. Therefore, having an exit plan will help if this situation occurs. Are you prepared to hold onto the property if the economy is bad and it isn’t selling as you hoped? Having multiple exit strategies will prepare investors for the worst case scenario.

You can never be too prepared when it comes to real estate investments. Envisioning every possible scenario and asking yourself these big questions will help determine if this type of investment is really for you.  

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