Property Investment: Wrapping Your Head Around the Investment Process

The thought of property investment can be both exciting and daunting for a number of reasons, but the anxiety can be greatly relieved by understanding the investment process and understanding the market and financial responsibilities.

Property investment tips

Don’t be afraid… get educated!

You’ll want to have a handle on as many of the numerous investing factors as you can: Is the property you are considering being offered at a good value? What is the market like in the area? What will your overall costs for owning this property be? There will be a myriad of factors and even if you think you know what will be involved, it is a great idea to get some help:

Talk to a professional

You might get queasy if you entertain the idea of paying someone to give you property investment advice. Or you might be stubborn enough to forego a professional investment advisor’s thoughts because you think you know “the business.” Don’t let this type of thinking get you into financial trouble. Paying for professional property investment advice can be one of the best investments you make during this process. Don’t make what could be a costly mistake because either you were too proud or too budget conscious to seek out professional property investment advice.

Join the club

One alternative to paying for property investment advice can be joining a real estate investment club. Here, members share ideas and information with one another and can be a great resource for new investors. One advantage–these clubs will usually be much more affordable than hiring a professional (sometimes they are free.) One disadvantage–you have to consider the source. You might not truly know if you are getting sound property investment advice, so being cautious and observant before acting on information gleaned from the club would be a wise move.

Source of property investment funding
photo credit: 401(K) 2013

Decide the source of funds

You will want to know what the availability of funding for your possible investment before you get started. Do you have substantial cash in the bank, or will you be obtaining a loan to make this purchase? If you will be paying in full with cash, the process will be easier as there will be a larger pool of investment properties available, usually at better prices.

For instance, foreclosures and short sale properties will be more attractive to cash buyers, because these buyers will have less competition from other buyers and investors, and the banks will have less trepidations. However, you shouldn’t be discouraged if you are planning on getting a loan to make your purchase. You’ll just want to be prepared to have a longer process during the purchase and you might have a slimmer window of investment opportunities. If you can put a down payment on top of your loan, it will help a good deal with this type of investment purchase.

Be aware of the costs involved with your purchase as well. Don’t sink every bit of your money to make the purchase, because there will probably be other costs outside of the purchase alone. For example, if you are investing in property that will be rented, you need to be aware of the costs involved in maintenance, upkeep, payroll, etc. for owning the property. What happens to your cash flow if you don’t find a tenant in a timely manner? You will still need to be able to pay the utility bills, taxes, etc. on your empty property.

Understanding the risks

Be comfortable with the amount you are investing. No one likes losing money, but it can help if you can visualize this possible investment in the worst possible situation after purchase. Would you be able to stay afloat financially? There are always risks when investing, but it shouldn’t be a game of high stakes poker.