The Siren Call of Real Estate Investing
I am passionate about owning property as an investment – and I’ve met many chiropractors who feel the same. Unlike buying stocks or bonds, investing in real estate is tangible. There’s risk, of course, but owning a lot, house, or condo is having something real that you can see and improve upon and, barring an act of God or once-in-a-lifetime recession, it won’t lose its value overnight.
5 Questions to Ask Yourself Before Buying Real Estate
Thinking about buying a house to flip it, or perhaps renting out a few properties? Here are a few things to ask yourself first.
- Do you have a true passion for properties, and also an interest in bigger issues like how neighborhoods shift over time and what makes a location attractive or not so attractive? (As a chiropractor, you may be ahead of the game on this one as building your business involves getting out into the community.)
- Are you a patient person? Having patience can be frustrating and nerve-wracking, but, as a real estate investor, it’s part of the job requirement. If you’re not comfortable with the idea of waiting, in some cases, years (or even a decade or two) for your real estate investment to really start upping your income, this field may not be a good fit.
- Even as you are growing your chiropractic practice, are you comfortable with putting a chunk of money somewhere and not touching it? While real estate is a great way to make your money work for you, to do it well and get the most out of the investment, it also means being comfortable with having money tied up – maybe for years or even decades.
- Do you understand the pros and cons of leverage? Spend significant time reflecting on what this means in real estate. On one hand, using the bank’s money to buy a property will earn you more money than you borrowed in the long run, ideally. The flip side is that the value of the house could go down (though the severity of what happened in 2008 was historic), and if you can’t sell it for more than you owe the bank, you may end up with a big loss.
- Are you willing to start with residential properties? Commercial properties such as your chiropractic office require significantly more experience and money because they come with many more risks.
8 Ways to Win the Real Estate Game
Real estate does involve some luck and timing, but I’ve found that never deviating from these eight critical philosophies is what has helped me see success.
- Start small, especially if you’re more risk-adverse. A good option here would be a condo in an area where you have personal knowledge of the rental market.
- Don’t buy a property unless you can hop in the car and go see it. If you are far away, you are at the mercy of property managers and maintenance people, some of whom you may not know. Better to be able to assess the situation yourself and call upon a trusted source for help.
- Maintain at least a 20-year outlook. That’s the timeline I use for the properties I rent instead of flip. It will take about that much time for the rent to pay off the mortgage so until that point, you really won't be making much money on the property. (I avoid 30-year mortgages and am committed to paying down my properties faster than most people do. Aggressive amortization may be something for you to consider as well.)
- Have a plan before entering into an investment – a plan that involves specific numbers. Don’t say, “If it doesn’t rent soon, we’ll drop it a bit.” Instead, run the numbers and be able to make a definite plan based on them, such as, “If the house doesn’t rent in the next three months, we’ll drop our asking price by $100/month.”
- Turn off HGTV. Remodeling shows and magazines can have some interesting ideas, but they spotlight the most extreme cases and often make exaggerated claims about potential returns – and often downplay the real costs of a project. Don’t put a lot of money into trendy upgrades. Keep it simple.
- I typically buy condos or homes in the $100,000-$200,000 range. (Now, I’m talking about mid-range markets, not California or New York City.) I don’t typically buy below that amount because, for my market, it signals a problem property or a bad neighborhood. Spending above that range and covering the monthly mortgage and expenses starts to require a rent amount that excludes too many potential tenants, making the property harder to keep filled. These numbers are all about thorough knowledge of the markets where you are buying, something you must research.
- Budget for both short-term and long-term maintenance. Short-term means fixing the lights before offering a property up for rent. Long-term means if you know you want to own a property for 20 years, it’s inevitable at some point you’ll need to pay to have the roof replaced, the HVAC systems replaced, etc.
- Make choices that reflect your lifestyle and time. When I was younger, unmarried and childless, I bought properties where I did the fixing up myself, and also screened the tenants. That involved a huge amount of time and some headaches, but I didn’t have extra cash to hire help. In my 40s now, with a busy family life and a full-time career, most of my properties are repaired and managed by people I hire. As a busy chiropractor, you too may not have the time or desire to fix every leaky faucet. Ask yourself how much time you are willing to put into it and whether you can afford to outsource maintaining the property.
When a Hot Market Can Spell Trouble for You: Red Flags
A great market is, well, a great market! It’s wonderful to sell high or have renters outbidding each other.
But keep in mind: markets with low inventory will fuel a flipping market. Loose credit standards will also generate larger amounts of flippers, as we saw in 2008. Like many things, flipping markets and generous lending are not necessarily bad – but they can lead to big problems. Once the inevitable stall or tumble happens – and it happens in almost every housing market every five to seven years – values will halt or drop, and foreclosure rates will increase. If you’re interested in real estate, as many chiropractors are, those elements are market factors you need to be prepared to have the stomach to ride out. History proves that property values always bounce back. Even if you are tempted to sell out of fear of a further slide in value during a crash or downturn, it can be wise to resist giving in to that emotion. As the saying goes: “Stay calm and carry on!”
I wish you the best of luck should you decide to add real estate investment to your many responsibilities as a busy chiropractor. I believe in it, work hard at it, and hope to ultimately retire happily off of it. With the right temperament, knowledge, and willingness to work, you can, too.