Investment Properties: Getting Started

Investment Properties: Getting Started

Here at MomVesting, we're introducing a huge new series about non-traditional investments. These non-trads cover everything from investing in others' business ventures to investing in blogging to purchasing investment properties. We hope you'll join us as we move along in the new large investment series on Mondays!

As we move forward in this new endeavor, we decided to cover investment properties first. And there's a ton to cover, so chatting about real estate investments will become its own mini-series in which we'll dive into the ins and outs of financing, landlord tips, renting to great tenants and other must-know details. In this first post, let's tackle how you get started, beginning with how you make the big choice in joining the landlord gig.

Deciding to Become a Landlord

Before you go too far in chasing the landlord dream, it can be helpful to decide if becoming a landlord is truly in your best interest. Owning and renting out an investment property can become a second job (or even a first!), so if you're unsure if the real estate game is for you, try to ask yourself the following questions:

Do I have the time, money and/or expertise to make repairs to a potential property? Stuff breaks, appliances wear out and properties suffer from general wear and tear, so you will need to spend time and money repairing things. And if you're no Joe Handyman, it will cost extra to have the repairs done by another party.

Am I secure enough in my own financial life to take on responsibility for a property with a financial life of its own? Any number of things can occur that could throw your investment property finances for a loop (see repairs above), but one of the biggest issues is: renters are never guaranteed. Ideally, a savings account should be set up solely for this business venture to cover a poor rental market, repairs or any other financial disasters that could be on the horizon.

Am I authoritative and organized enough to run my own business? This could be key, especially if you want to run a multi-plex or apartment building. Knowing that your personality fits the demands of the job could save you a lot of headaches. However, if you don't care to be the front-line person in apartment management, it is possible to hire a manager. In this case, though, the organization of the business and finances is generally still up to you.

Where do I expect this investment to take me? As with any investment, it is important to look over the finances to determine if the real estate investment can meet your goals in your personal allotted time period. For example: can you make enough in rental income to pay off the home in, let's say, ten years (before your kids head off to college)? There are also a ton of ways to determine a good investment by the numbers...but we'll look into those details at a later date. For now, just identifying your personal goals can help you decide if taking on the landlord responsibilities is even worth the hassle.

Is my portfolio diversified enough? We talk about diversifying your portfolio quite a bit here on MomVesting – and for good reason. If there is anything that the market crash taught America as a whole, it's that having a diverse portfolio can help you stay the course to retirement. So take a look at your portfolio numbers to ensure that you have some safer investments mixed in (maybe using the 100-minus rule).

Once you look over these generalities, you can better decide if you even want to enter the real estate game. At this point, it may be best to take some time to mull over this potential investment path: owning an extra home does come with risks, especially in this market. If you still think owning and renting out an investment property is in the cards for you, join us next week for the next step: deciding which type of property ownership is is your best interest.

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Mitchell Pauly's picture

Mitchell Pauly wrote:

Tue, 09/25/2012 - 20:41 Comment #: 1

Great topic and article. Over the last six months I have been working towards purchasing an apartment building, and although the financing structure is assuredly different from what is standard I can certainly concur that it is a stressful, long process with many inherent risks. Unfortunately for younger folk such as myself a real-estate investment can require going "all in" or nearly so, essentially eliminating all diversity in your non-retirement investment portfolio. If this is the case (at any state in life) and you are considering a multi-unit income generating property, I would encourage anyone to look at the experience as a entrepreneurial venture rather than simply a real estate purchase or standard investment (to Christa's point of "where will this investment take me"). A entrepreneurial frame of mind is a very powerful tool in successfully investing in real estate, and may allow you to justify being "all in". After all, if it works out you won't be "all in" the next time around... and if it doesn't, well, I may have some inexpensive apartments I can rent to you.

Christa Palm's picture

Christa Palm wrote:

Wed, 09/26/2012 - 02:12 Comment #: 2

Mitch, very good points! The entrepreneurial mindset is very powerful for those at the right point in life, like you. Good luck with the apartment building!

Alex | Perfecting Parenthood's picture

Alex | Perfecting Parenthood wrote:

Wed, 09/26/2012 - 21:14 Comment #: 3

I agree with Mitch, but going all-in on real estate can be very good. Most of my net worth growth came from real estate. There are also many ways to do an investment property, besides just residential landlording. Landlording is crummy ... you really get to meet the worst type of people eventually :)

Christa Palm's picture

Christa Palm wrote:

Wed, 09/26/2012 - 21:32 Comment #: 4

Alex, you'll have to share the non-landlord investment property details -- sounds interesting!

John Stevenson's picture

John Stevenson wrote:

Thu, 09/27/2012 - 05:09 Comment #: 5

Great idea for a series of posts! Keep up the great work.

I agree, real estate is a great way to make a good living - if you do it wisely. But, the basics are quite simple and in this buyers market - much simpler. Buy cheap, rent until the market recovers and sell for a profit.

In today's mortgage market, getting bank financing can be a real trip. So your first step is to get pre-qualified for a loan. Don't even start shopping for investments until you have done this. Pre-approval will (1) tell you how much you can buy and (2) it will make it more likely a seller will accept your offer and (3) the closing is much quicker.

Investment Properties: Deciding on a Property Type | MomVest's picture

Investment Properties: Deciding on a Property Type | MomVest wrote:

Mon, 10/01/2012 - 11:15 Comment #: 6

[...] landlord tips, renting to great tenants and other must-know details. Last time we talked about how to decide to become a landlord. In this second investment properties post, let's tackle how you decide on a property type in which [...]

Christa Palm's picture

Christa Palm wrote:

Tue, 10/02/2012 - 20:58 Comment #: 7

Thanks, John, and great tip! Pre-approval makes getting that investment property so much easier.