Real Estate Investing 101
Real Estate Investing Expert Mark Rezac Kansas Commercial Real Estate Services, Inc.
If you have been thinking about investing in real estate, here are answers to some commonly asked questions for the first time investor.
How much does it cost to invest in real estate? Every person’s financial situation is different and unique. Some individuals may have a substantial amount of cash available or the ability to obtain a loan. Some individuals may partner up with a group of investors in order to purchase a more expensive property
How much of a down payment will be required? Your financial institution will tell you their minimum requirement. Normally a minimum of 20% of the purchase price will be required as a down payment, but some lenders may require up to 50% down.
Can I have a 30-year mortgage like the loan I have on my house? Most lenders will only allow a 5 or 10-year loan on a commercial loan. Monthly payments may be calculated on a longer amortization schedule, but after the 5 or 10-year loan term, you will be required to refinance or pay off the debt.
Do I have to spend more money on the property after I purchase it? Yes. Every property needs continual maintenance, and a property owner needs to have a maintenance budget. Major maintenance items may include the roof, guttering, exterior painting, heating and air conditioning systems, parking lot repair and maintenance as well as re-striping. Additional maintenance items would be lawn care, landscaping, snow removal for the parking lot and sidewalks, and sign maintenance.
What happens to the tenants at the property after I become the owner? Tenants usually remain at the property for the duration of their lease term. At the end of a tenant’s lease term they may either renew their lease or relocate to a different location.
What happens if a tenant moves out? First, begin marketing the space as soon as possible. Meet your commercial real estate agent at the vacancy to discuss what is required to market the space. Items including cleaning and updating the space may be necessary. Once a tenant is interested there may be additional expense to fit the new tenant’s requirements or desired floor plan, such as new carpet, paint and other remodeling.
How do I manage a property and my current job at the same time? Many investors find it difficult to juggle both jobs. Tenants will call at any time of the day if there is a problem and want an immediate response. Will your main job allow you to respond to your real estate investments? If not, then you need to include hiring a professional management company as part of your expenses.
Who do I need to talk to before I purchase an investment property? This is probably the question that is rarely asked, but one of the most important ones. You should visit with your accountant and financial planner to determine if you have the ability to purchase real estate. A financial institution would be the next visit to determine what you can afford. Then you need to speak with a qualified real estate professional. A real estate fee is a nominal expense if it saves you from overpaying for a property or making a foolish investment.
How do I know if an investment is “a good deal”? Ask your commercial real estate agent to create a pro-forma for the property to determine if the property cash flows. Look at the property to determine if there is an upside. What is your exit strategy?
Mark Rezac is a partner/retail broker who primarily does retail sales and leasing along with land and multi-family home sales.