The smart way to invest in real estate is to have a financial plan for the property you purchase. I highly recommend buying real estate investment software to get started. Real estate investment software will analyzes the return on investment to procure the property, hold the property, and sell the property.
The most important part of your real estate investment plan is your reserve account to cover costs for the attorney, repairs, maintenance, insurance, property taxes, HOA fees, utilities, vacancy time, rehab time, and market time. How much reserves you need to carry per property will depend on if you’re carrying a mortgage or not, the condition of the home and if the property is a lease option. If you’re carrying a mortgage and the rent is not coming in for 3 months that can put a good dent in anyone’s pocket-book. I have been to several investor classes and workshops and the subject of reserves or should I say, ” protecting your investment ” never seems to come up.
Questions to ask yourself before investing your money in real estate:
How many months or years do you want to hold the property?
Do you prefer to buy, fix up, and sell?
Do you want to be in the landlord business or hire a property management company?
What amount of return are you looking to get on your money?
How does an investment property affect your federal tax return?
What additional state and county taxes will you have to pay that are not property taxes?
Are you looking for monthly cash flow?
Do you want to manage contractors to rehab or rehab yourself?
What is your time worth?
Where will your investment money and reserve money come from?
Should you open a Roth self-directed IRA?