The old adage “we fear the unknown” holds especially true for real estate investing— in fact, in this type of venture, what you don’t know can keep you up at night!
Due to the complexity of real estate investing, investors fears typically fall under four broader categories:
- Fear of Making a Mistake: What if it’s too much work or you made a mistake in your return calculations?
- Fear of the Unknown: Do you have enough knowledge of the industry to make sound judgements?
- Fear of Loss: What if you lose money in a bad investment?
- Fear of Failure: What if you don’t succeed like others in the industry have before you?
No one wants to fail, especially when it comes time to make key financial decisions regarding the future. The problem is that many people who otherwise stand to make a lot of money end up (unnecessarily) shying away from the entire investing process; so rather than choosing this irrational, unproductive option, commit to becoming better prepared!
5 Tips to Help Mitigate Your Investing Fears
Perform Your Due Diligence
Don’t allow your fears of making a mistake get the best of you; instead, take comfort in the fact that knowledge is power, by taking the time to learn the basics (before putting together a team of real estate industry experts). This includes the process of investing i.e. what you should expect during each stage, as well as the expenses associated with real estate investments. Other key aspects include learning the comparable rent prices for the neighborhoods you’re interested in investing in. If any of this seems overwhelming, reading HomeUnion®’s Beginner’s Guide to Real Estate Investing can help diffuse much of the anxiety.
Put Together the Right Team
Your self-study was a great primer, but no one can possibly perform all the tasks required for a successful real estate investment on their own. Therefore, you’ll want to rely on a team of experts with specialized knowledge to help you watch your bottom-line. These include agents, lenders, legal advisors, property managers, among others. They function as trusted advisors who give you an abundance of expert advice; while you’ll be the one who makes the final decisions. With your own working knowledge of the industry and expert guidance, your confidence regarding the investing process will be peaking.
Asking questions— in an investing context— means making sure that you understand what types of investments work best for your financial situation and the types of contracts that come along with real estate investing. Here are five questions you should be asking before you decide on a company to work with. These questions will ensure that you fully understand everything you’re signing, prior to commitment:
1. Who owns the property?
2. Are there tenants in place?
3. How are the company’s projections calculated?
4. Who takes care of the property management?
5. Do I need to be an accredited investor?
Prepare for the Worst Case Scenario
The key to this tip is to be prepared without being pessimistic. Remember that while contingencies are necessary, they don’t imply some horrible fate. The best contingencies involve having an ample amount of cash on hand (more than you think you’ll ever actually need), because as an investor, you’ll have many expenses that can’t wait. These include maintenance and repairs, property taxes, and rent loss due to vacancy. We recommend having at least $20K or more in cash on hand.
Use Reason, Not Emotion
When purchasing a real estate investment, refrain from getting emotional. After all, the property is an investment— not the place where your life’s most intimate moments will take place! So, when considering a potential purchase, detach yourself from its imperfections and concentrate on the data (like what you stand to spend and what you stand to make) instead.
HomeUnion® is comprised of a group of experts you can trust. They help mitigate your fears— and the risks involved in investing— by assisting in all of the ways listed above. Familiarize yourself with the investing process, by calling one of our specialists at 888-276-0232 or scheduling a consultation today.