3 Financial Steps to Take Before Investing in Real Estate

This guest post was contributed by Dream Home Property Solutions, LLC, your source for expert advice on Ventura County Real Estate.

Real estate has yet again become one of the most popular forms of investing.  With the recovery of the real estate market in many locations, the popularity of the house flipping shows, and all of the real estate gurus teaching their “secrets,” it’s created the perfect storm for people to consider investing in real estate.  Although we love real estate investing and what it can do for people financially, there are several steps you might want to consider before taking the leap.

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Build Your Savings Account

Whether you are investing in real estate or not, most experts agree that everyone should have money saved up in their savings account for emergencies.  The idea behind this is that you want to have money immediately available for you to live on if you were to lose your job for whatever reason and/or are not bringing in any source of income. Even if you have a fairly stable job, this money could be used to pay for any large unexpected expenses, such as medical bills, home repairs, etc.

This money does not necessarily need to be in a bank savings account, but it should be fairly liquid, such as a Certificate of Deposit (CD). We have seen recommendations anywhere from 3 months of savings to 12 months of savings.  The amount you choose will ultimately be up to you and your risk tolerance.  If you have a stable job and not many expenses, you may choose the lower end of that spectrum.  If you are self-employed, or have an older home or car, you may want more savings in anticipation of costly repairs.

Pay Down Debt

As you are building up your savings, you’re also going to want to start paying down any debt you may have.  The most common approaches we have seen for this are either paying off your lowest balance debts first or paying off your highest interest rates.  The idea behind paying off your lowest balance is that once it’s paid off, you can then use the amount of money you were paying per month and apply that additional amount to the next lowest balance.  There are pros and cons to each approach, so do whichever one you feel most comfortable with.

Although some financial planners view all debt as bad, you will find a lot of seasoned real estate investors tell you that leverage used properly is a good thing.  If you have debt with a low interest rate, and can get a higher expected return by investing in real estate, it may make sense to invest in real estate as opposed to paying off the debt faster.  For example, those with good credit can find auto loans for 0% interest.  Instead of paying off the auto loan, you might be better off financially by investing that money in real estate.

Take Advantage Of Your Company’s Retirement Matching

Some companies will match your retirement contributions (401k, TSP, etc.) up to a certain amount.  If your company has this perk, you should strongly consider at least investing the amount up to which your company will match.  This is basically free money for you to take advantage of.  We have heard one financial planner state that you can get higher returns in other vehicles, even when you take into account company matching, but contributing to your retirement account is an easy method to start saving up money for retirement.

At Dream Home Property Solutions, we are here to help you with all of your Ventura County real estate needs. Visit us online at www.DreamHomePS.com

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