Have you been feeling tempted by the many opportunities which real estate investing offers for making money? Are you thinking whether you should buy a rental property and become a real estate investor and a landlord? Well, before you make any quick investment decisions and end up wasting your time and money, you should consider very carefully whether buying an investment property is the right way to make money for you. While owning, managing, and renting out a rental property could be a very lucrative business endeavor, this is just not always the case. Believe it or not, there are situations in which you should not buy a rental property because it will be a bad investment decision and a failed attempt at making money. So, in order to protect you from wasting your time and money, let’s see when you should not buy a rental property:
1. Do not buy a rental property if you cannot afford it
So many times we have heard people saying that there are always ways to buy an investment property and start investing in real estate with little or even no money. While usually there is a way to finance the purchase of a rental property, there are some situations in which you simply cannot afford such a step. Let’s say you have very little or no cash and a poor credit score. Then don’t try to do the impossible to collect enough money to buy a rental property. If your financial history has been pretty bad, what makes you think that your situation will just change all of a sudden? It is better to wait for a couple of years, try to save up some money, and then move on to buying an investment property. Don’t be tricked by the promise of quick financial gains if you simply cannot afford buying an investment property at the moment.
2. Do not buy a rental property if the market is bad
Conducting real estate market analysis is the first step in the process of buying an investment property. If analysis shows you that the local or national housing market is currently in a bad shape, with low profits for real estate investors and landlords, don’t push too hard. If other real estate investors are losing, why do you think you would be any different? Unless you somehow magically know it for a fact that you will be able to make money in real estate investing while others are losing, just do not buy a rental property. Wait for a few months or years until the real estate market changes. The US housing market is so dynamic that the state of affairs is likely to be drastically different in no time, and then you can reconsider your wish to buy a rental property. Another option is to look for other markets, out of state or maybe even internationally.
3. Do not buy a rental property if you expect a negative cash flow
The main purpose of investing in real estate is to make money, right? And how do you make money with rentals? By collecting rental income which after you cover all running expenses should leave you with positive cash flow each and every time. In real estate investing, positive cash flow properties translate into making money, whereas having negative cash flow equals losing money. Thus, before you decide to buy a rental property, you should conduct careful investment property analysis – preferably with the help of a rental property calculator like Mashvisor’s – to know exactly how much money you can expect to make from your income property. If the expected rental income is not enough to cover the expenses, then just forget about buying a rental property. The last thing you need in life is a negative cash flow real estate investment property. You are better off without any investment property than with one that will make you lose money.
4. Do not buy a rental property if you are not ready to be a landlord
True, there is this great thing in the world of real estate investing and owning rental properties called professional property management. However, if you are still about to buy your first investment property and become a real estate investor, chances are that you will not be able to afford paying for professional property management services. This means that at least in the beginning, you will need to do all the work associated with managing your income property and dealing with the tenants. If you are not someone who can multitask and who enjoys a busy lifestyle, it is best to not buy a rental property.
5. Do not buy a rental property if you are not ready and willing to learn
Real estate investing is largely learning by doing, and that’s one of the reasons why there is no such thing as a masters in real estate investments. At least not in the regular colleges and universities… One great thing about real estate investing is that it gives you an endless opportunity to learn more and more and to grow as an investor. Nevertheless, there are people who are just not good at self-learning and improving themselves on the basis of their own experience. If you are one of those people, then it is recommended that you do not buy a rental property. If you do not plan to be constantly learning from your experience as a real estate investor and a landlord and to be expanding your real estate investment portfolio at all times, there is no point even starting.
No matter how many stories of successful real estate investors you might have heard, you should know that real estate investing is not the best option for everyone, at all times. There are cases when it is better not to buy a rental property and not to become a real estate investor. This is not to say that this is not the right choice for you. All this means to say is that you should study your situation very carefully before you decide to take the important step of buying an investment property as it requires a lot of time, money, and energy. But if you think that real estate investments might be your way to becoming rich, keep reading on Mashvisor for more advice and guidance in this exciting world.