By info@shareamg.com 
The decision to begin investing in real estate is more complicated than buying a stock or a bond. Real estate investing requires an up-front financial commitment, ongoing expenses, and personal responsibilities that other investments don’t need. Before you begin, ensure you understand and can fulfill the economic and personal obligations that real estate investing demands.
Assess Your Financial Situation
Real estate investing requires a large initial chunk of capital plus an ongoing income stream for mortgage payments and everyday expenses, such as repairs. To assess whether you’re in a financial situation suited to real estate investing, consider the following factors:
- Monthly cash flow: To calculate your cash flow, subtract your monthly expenses from your monthly income. Consider investing in real estate only if your monthly cash flow leaves enough money to cover the costs and mortgage payments you’ll have to pay for the property you buy. Never invest expecting to cover expenses by borrowing and eventually repay your loans by selling your property.
- Debt-to-asset ratio: Calculate your debt-to-asset ratio by dividing your total liabilities by your assets. Your debt-to-asset ratio should be less than 1. If your cash flow is much higher than 1, you probably have too much debt to invest in real estate.
- Available capital: In addition to the monthly cash flow for mortgages and expenses, you’ll also need a lump sum for the down payment, usually 20% of the property’s price. Though some investors make a smaller down payment, it’s best to limit your investing to properties for which you can pay at least a 20% down payment from your savings or from a pool of money assembled by partners with whom you’re investing, such as friends or family members.
- Time horizon: Your time horizon is the amount of time you expect to own an investment before selling it. Real estate investing works best for investors with time horizons of at least 5–7 years, and preferably more. Before buying any investment property, be sure you’ll have the money required to hold the investment—and pay for the costs it generates—for at least 5–7 years.
Consider the Expenses Involved
Besides the down payment and mortgage costs, as a real estate investor, you also need to think about these ongoing expenses:
- Management fees: If you don’t manage the property yourself, you must hire a property manager. They handle tasks like bookkeeping, maintenance, and dealing with tenants. Most property managers charge about 10-15% of the rent you collect from tenants.
- Repairs: You’ll most likely encounter problems you can’t fix with your property, such as plumbing or electrical issues. In these instances, you’ll need professional repair service, which can cost $50 per hour or more. Setting aside $25 or so monthly for a repair fund is a good idea—eventually, you’ll need to use it.
- Property taxes: Though you can usually deduct property taxes on your federal income tax return, you still need the money available to pay your tax bill during the year—most municipalities collect property tax payments several times yearly. Property tax amounts vary by city, but you should expect to pay at least 1% of the home’s purchase price yearly. Lenders often link escrow accounts with mortgages to bundle property tax payments in with mortgage payments—that way, you pay off your property tax bill and mortgage at once.
- Condo and co-op fees: owners must pay monthly dues for property maintenance and other shared expenses. These dues vary widely but usually amount to at least $100 per month or considerably more in some cities.
Consider the Personal Responsibilities
Owning and managing property can have a reasonably significant impact on your lifestyle becoming a real estate investor, consider these factors:
- Your location: The closer you live to your property, the easier it will be to find tenants, fix problems, and collect rent. You’ll probably need to hire a property manager if you live far away.
- Your personality: You’ll face issues like late rent or property damage even with good tenants. Handling these problems takes firmness, such as asking for rent or evicting tenants. If you’re uncomfortable with that, real estate investing might not be for you.
- Your time: Real estate investing takes a lot of time to find, buy, manage, and sell properties. If you’re unwilling to commit much time to it, you might be better off with more straightforward investments like stocks.
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