Coulrophobia; fear of clowns. Trypophobia; fear of clusters of holes. Domatophobia; fear of houses. There doesn’t seem to be a specific word for the fear some people experience when they consider investing in real estate, but thankfully that fear is one that is easily cured.
Let’s look at some common fears that keep people from entering the world of real estate investment and how you can overcome them.
Negative Cash Flow
One common fear that causes people to shy away from buying real estate is the fear of money going out in the form of a mortgage, maintenance, and other expenses. You are investing to make money, so the idea of additional expenses can be intimidating. Thankfully, if you select your properties carefully–more on this later–it is unlikely that your monthly expenses will be more than your rent collected. Money goes out, but even more money comes in to replace it.
You should aim to purchase properties with positive cash flow, which means that after you account for all expenses, potential vacancies, and tax implications, you make more than you spend.
You can help calm your fears by running the numbers. What are comparable properties renting for? How much are the estimated property taxes? How much do you estimate spending on maintenance? A good rule of thumb for maintenance estimates is about 1% of the property’s value per year, though that could be slightly higher or lower depending on the age and condition of the property. Once you have all these answers, you’ll have an accurate sense of the property’s cash flow potential.
For even more peace of mind, remember that the security deposit you collect from your tenants may offset some repair and early vacancy costs, so ensure you collect an adequate deposit from all tenants.
There’s a saying that the best time to plant a tree was 20 years ago; the second best time is today. The same is true for investing in real estate. Markets fluctuate, but real estate investing is about the long term. Over your 10, 20, or 30-year investment horizon, those fluctuations don’t make much difference. If the value of your property drops temporarily, that means nothing unless you sell it while the price is down.
If you go into real estate investment with a plan to buy and hold your properties, those short-term variations in price shouldn’t worry you. So there’s no need to try to time the market or predict the direction of real estate prices over the next year. Find a solid investment property and let it start working to build your financial future. Tree planting is entirely optional.
Eating Into Your Time
You are likely considering real estate investing because you want financial independence, giving you more time doing what you love. That can be great for your personal life, relationships, mental well-being, and health. It’s even better if you happen to have ergophobia, a fear of work. It’s the driving factor behind many people’s interest in real estate investing, but it’s also a source of fear.
You may be concerned that taking on investment properties will consume more of your time instead of buying you additional leisure hours. Thankfully, most residential real estate investing takes relatively little time each month. You can make your investments even more passive by hiring a property manager to collect rent, vet tenants, and take tenant phone calls.
If you want to spend less time researching your next property, a real estate investment company can use its expertise to save you even more time. They will help you locate properties with the best chance of high returns on your investment. If they do the research for you, you can spend even less time on your money-making properties.
One of the things you likely won’t miss about traditional employment is late-night and weekend phone calls. A patient needs to see you or the server has crashed and suddenly your plans are ruined.
You may fear owning rental properties will bring you more of that kind of unwelcome interruption. This is another problem you can solve by using the services of a property manager. They take that 2am phone call when the tenant is locked out, so you don’t have to. An experienced property manager helps you see the upsides of being a landlord without the stress.
Buying the Wrong Properties
Buying a bad property may be the most common fear for novice real estate investors. Once they understand the many benefits of investment properties, they may still struggle to pull the trigger because they are anxious about getting stuck with a lemon. This is another area where a real estate investment group can help. Their understanding of local market conditions can steer you away from properties that are likely to underperform. They can point you toward homes with the best cash flow and appreciation potential.
These experts will also look for factors you might not even consider. If you invest in a property without realizing there’s a busy fire station on the next block, you might quickly come to regret it. Real estate investment professionals can help you avoid this type of situation.
With the help of experts or some time spent researching, you can take much of the luck out of property selection and help ensure the success of your burgeoning real estate empire.
It’s easy to fear what we don’t understand. Looking into the fundamentals of real estate investing can help you realize that the things you are afraid of are mostly within your control. Thoughtful decisions about your real estate investments can steer you away from those “what-ifs” that prevent you from making a decision that could transform your financial future.