What You Need to Know Before Investing
harkins / June 9, 2017
It’s the thing to do now. The way everyone wants to make money. Passive income is attractive and property investment is one of most sought after sources.The passive classification of investment income does not excuse you from doing the initial legwork. It’s not a game you just toss your money into and hope for the best. You must take calculated action to have the best opportunity for success. If you want to make money, here’s what you need to know before investing.
Return on investment is not guaranteed. One of the first things you should have a clear understanding of is that you’re taking a risk. You’re not trading time for an agreed upon dollar amount. You’re trading money for a possible more lucrative outcome. The expectation is that things will go well and you’ll walk away with more than you started.
Along with optimism, you must accept the possibility of walking away with nothing. You can do everything right and still have a touch of misfortune. All it takes is a natural disaster or twist in market performance to send the numbers in the other direction. Before you sign the dotted line on any investment deal, have it in the back of your mind that this could be the last time you see your money. That mental preparation will motivate you take preventative action in the steps ahead.
Investing the money is just part of the task. In fact, that step is closer to the end than the beginning. Before that, you have a lot of research and planning to do in many different areas. Once you accept that investment is a risky business, it’s time to prepare to make wise decisions and minimize risk. Those steps include a breakdown of your anticipated return on investment (ROI), property expenses, and specific risks.
It’s not enough to just know that you plan to make money. Go a step further and decide how much money you need to meet your goals. That number drives many other key decisions within the investment plan. To meet your return on investment goal, include the amount you want to profit plus property expenses and taxes you must cover.
When thinking about expenses, you need to know what it takes to get your investment making money for you. Consider if you had to take out a loan, make repairs or renovations, and how much you expect to pay in property taxes. You also need to include time the property may be vacant in between tenants. Location will play a huge role in answering some of the financial question you need to know.
Once you have an area in mind, you can go deeper with doing the math on expenses. Utility bills, insurance, and homeowner’s association fees are some of the items you need to include in your expense calculation. Property managers, utility companies, and other investors in the area can tell you what to expect with typical expenses.
Once you’ve got your numbers down to a science, you still need to think about your risk from a financial standpoint. Prepare for the situations that will keep you from getting your expected ROI. Factors like how quickly you can fill the property or if you’ll get a good tenant who will pay and take care of it play a huge role in meeting your revenue goals. A slow paying tenant is just as bad or worse than a vacant property. These factors make the preparation step most critical.
The last thing you need know before investing is that it takes time. You have to invest time to do the research, choose the right investment, and wait to gain from it. If you don’t have time to allow your investment to develop, you may as well take a seat at the crap table. If you choose to commit to investing enter your venture with care and patience.
Understand nothing in the investment world is guaranteed. Do your research and take time to choose the right location. Know all of your possible expenses and take your calculations seriously. Keep the risks in mind and prepare for them. Having a successful property management team behind you will prepare you for the investment road ahead. Visit http://www.harkinscommercial.com/ to learn more and get help with your investment projects.
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