Real-estate investing has quickly become a passion of mine. I don’t know if it’s the thrill of the rehab or the race to financial freedom that fuels my passion, but without a doubt a fire has been ignited. To date, my investing involves flipping houses and acquiring rental properties.
It’s no secret that when you invest you are taking a risk. It’s quit possible you are taking a risk with your money, an investors money, your credit, your time and the list goes on. It’s risky because there is no guarantee that your investment will turn a profit which can make the whole thing pretty darn scary. Sometimes scary enough to never get started.
I have found that there are two major components, in addition to fear, that can be major obstacles when getting into real-estate investing. What aggravates me is that many of the investing guru’s, books and tv shows don’t go into detail about these things. The two missing pieces are:
- Finding The Money To Buy The Property
- Rehabbing The Property
Finding The Money
The first hurdle is finding the money to buy the house. I say “finding” because in my case I’ve had to search high and low (even beg) for the money. Lucky for me, my sights are set on a market that doesn’t take hundreds of thousands of dollars to get in the game. I love all the HGTV house flipping shows, but how the heck do they come up with $400,000 plus the cost of the rehab?
If you don’t have a fat bank account there is essentially one way to come up with the money: borrow it. You borrow it from a bank, an investor, a family member, etc. So far, my experience has been working with investors as my way to fund the projects. Regardless, of how you borrow the money there are going to be terms and conditions that you have to fully understand. For example, if you borrow the money from a bank then there’s closing costs, an interest rate and a monthly payment you have to prepared to take on. If you borrow from an investor then they are now part of the deal and are going to be sharing in your profit and maybe even in the decision making.
Rehabbing The Property
Taking on a rehab can be very intimating if you don’t have experience in home renovation. When rehabbing a house there are two major considerations: the cost of the materials and the cost of labor. Both are directly linked to how much you stand to make or lose on the deal. Often the cost of the labor can be more than the cost of the materials. This is why I do the work myself and this is exactly what has allowed me to even get into the investing game. This is the skill I bring to the table which is just as important as the money side of things because both have to exist in order to complete the project.
Even though I work with investors, I make all the decisions regarding the rehab such as the help I bring in and all the materials/finishes that go into the house. This is how I structure the deal so everyone involved has a specific role.
If you can’t do the rehab yourself then finding quality work that’s affordable can be a challenge. This is something that you should have figured out before you buy an investment property. Even though I do the work myself, there are times I need to bring in extra help that’s above my skill level. For example, if I need an electrical panel updated I will bring in a licensed electrician for the job. Connecting with people who can do such work is not always easy. You might go through several electricians before you find one that has the right price and the right quality of work.
Don’t Overlook The Details
The point of this article is to get you thinking about some of the details that we don’t always hear about when it comes to real-estate investing. Even if your goal is to buy a rental property you will still need money to buy the property and money to maintain the property. How you finance the purchase will directly affect your profit. And, there’s a good chance that some work will need to be done before it’s in rental condition. In addition, there are always things that need to be replaced and updates that need to be made. Knowing ahead of time who you’re going to call when there’s a plumbing issue will save you money.
Photo Credit: David Amsler via Flickr