3 Things to Consider Before Investing in Real Estate

By | September 19, 2012

Investing in real estate is an exciting step towards financial independence. It’s something that I am working on doing without having the hassle of day to day management. While some people go through the process of making it more passive through a real estate manager, I am going an even more passive route. I am investing in a limited partnership.

For those of you who don’t have the same opportunity as I do, you may be thinking about buying your own property in order to diversify your investments. If you ask me, this is a great idea. It’s not going to be stress-free, but it will provide you with some nice diversification in your investments. Yet, just because I am a huge supporter of real estate investing, doesn’t mean that you can do it without considering every minor detail. In fact, there are many things that you need to consider before making the leap.

1. Cash Flow – I’ve heard stories of friends or family members who buy a rental property and pay out of their own pocket each month in order to break even. This is not even adding in the irregular expenses. If you are going to invest in real estate, you need to start with a positive cash flow. It’s as simple as that.

2. Liquid Assets – Another major concern should be how much money you have in liquid assets. One of the worst mistakes you can make as a real estate investor is jumping in without enough money saved up. If a big expense comes, you will be responsible for that and without any money in reserve, you are stuck between a rock and a hard place.

3. Insurance – Another major mistake that you can easily avoid is not having enough insurance. While I am not aware of all the insurance requirements for a landlord, there are tons of resources available (like http://www.totallandlordinsurance.co.uk/). You can and should consult an expert before investing as it could save you from being liable for a major lawsuit. While it may cost a little extra, it will save you in the long run. Not only in the lack of lawsuit, but also in staying in the investment longer.

Real estate investing sounds simple, but it is much more complex. If you are looking to invest in real estate, don’t just jump in expecting to learn along the way. This could leave you in a bad position financially and ruin the experience for you. Take your time, do your research, and plan your entry into this lucrative investment vehicle.