Investing in real estate is a great way to diversify your investments. If you are looking to invest in real estate, making sure you are financially prepared is very important. Jan Gleisner, a trusted San Diego financial consultant, offers six key financial management tips all investors should keep in mind when they are looking to invest in real estate.
1. Save for Initial Capital
When investing in real estate, the first financial management tip you need to follow is to save for your initial capital investment. Investing in real estate is very capital-intensive. In most situations, you will need to have at least 20 percent down when purchasing an investment property. You will either need to have this money saved or be able to raise capital from additional investors to finance your first asset.
2. Use Leverage
While most people shy away from using too much debt and leverage, the use of mortgages is extremely important when it comes to earning a strong return on investment when buying real estate. Today, real estate loan interest rates are very low. Even if you are buying a property with a low cap rate, you can receive a much better ROI if you are willing to take out a loan. If you hold a property for a long time and build up equity, it may make sense to do a cash-out mortgage to increase your return even more.
3. Prepare for Home Improvements
While there is a lot of potential for strong investment returns, there may also be a lot of major improvements to make when you own a property. The price of replacing roofs, windows, and appliances and making other major repairs is quite expensive. Reserve a certain amount of money each year to prepare for these expenses.
4. Consider Management Fees
Owning real estate is also a business that can take up a lot of time. If you do not have a lot of time to give, it would be a good option to hire a company to manage your property. They will be able to handle all of the management, repair, and leasing needs that come about. However, the manager will charge a fee between 5-10 percent of the gross income of the property.
5. Prepare for Vacancies
If you own a real estate asset, there is bound to be a time when part or all of the property is vacant. It is important to make sure you have financial reserves set aside to cover times when rental income may not be coming in.
6. Keep Taxes in Mind
Successful real estate investors also need to consider their tax situation. There are a variety of strategies that can be followed to reduce your taxable income on your investment’s cash flow and ultimate sale proceeds. Properly preparing for taxes could ultimately save you thousands of dollars.
If you need additional tips on managing your finances, reach out to Jan Gleisner, one of the best financial advisors San Diego has to offer. Gleisner has over 16 years of experience in the financial management industry. Get in touch today.