Are You Financially Ready to Invest in a Santa Rosa Rental Property? - Article Banner

Maybe you’ve always wanted to be a real estate investor, but you never felt like you were in the financial position to make it happen. Investing in Santa Rosa rental property is a lucrative way to accomplish several financial goals, whether you’re trying to diversify a larger investment portfolio or set yourself up for retirement.  

So, how do you know you’re ready to buy a rental investment property?

More specifically, how do you know you’re financially ready?

Home values in Santa Rosa are high. It’s going to require some money to enter this market. 

We have seen a lot of new investors succeed because they’re prepared financially. They know the market and they understand which properties fit their investment goals. They’re also willing to ask for help from professionals like us.

We’ve also seen investors fail because they lack investment goals or direction, they try to do everything on their own, and they make impulsive decisions that aren’t based on facts or experience. They also fail when they’re not prepared for the money that’s required not only to buy a rental investment but to maintain it and improve it.

If you’ve been reading up on how to invest successfully, following the market that you want to buy a property in, and talking to local experts like brokers, real estate agents, and property managers, you might be ready to invest. If you’ve maintained solid credit, you have more money than you owe, and you’re ready to continue supporting your investment, you are likely financially ready to invest.

Financial preparedness is more important than anything.

Here are some of the ways that you can be sure it’s time to take the plunge and invest in a Santa Rosa rental property. 

Your Budget is in Place and You Have Solid Financial Records

Financial goals actually need to be set and achieved several years before you buy an investment property. 

What does your budget look like for your investment property purchase? Will you be paying in cash? As interest rates rise and home buying becomes more expensive, buying in cash puts you in a pretty good position as you negotiate with sellers. But remember that the way you finance your investment impacts your cash flow and your ROI. In some cases, using the leverage of someone else’s cash can help you earn more on your investment. 

Explore the options and decide how you’ll pay for your Santa Rosa rental home

Unless you’re paying in cash, you’ll need a loan. You probably know what those lenders will look for when deciding whether or not to offer a mortgage: 

  • Income
  • Assets
  • Debt

You cannot buy a large investment like a rental property in Santa Rosa without solid financial footing. If you know you’re going to buy the property by borrowing money but you don’t have enough for a down payment, keep saving. You’re not financially ready yet.

If you’ve developed a wealth strategy, set and achieved financial goals, and managed to save some money to support your investment career, you’re financially ready to explore investing in real estate.

You Need to Have Adequate Cash on Hand

Having cash available to make your purchase is not exactly negotiable. There are some alternative ways to finance a property purchase without a lot of money in hand, but those can be risky and often come with additional expenses and requirements. 

When you’re getting a mortgage through a traditional bank or lender, don’t expect to get 100 percent financing. Those days are long gone, you’ll need cash upfront for the down payment. 

The amount of that down payment will depend on the property, your own financial status, and the lender you’re working with. Typically, banks will want to see more than 20 percent down for an investment property. 

While we’d encourage you to be creative if you don’t have the money immediately available for that large down payment, don’t set up ways for you to fail. Yes, you can move retirement funds into a self-directed IRA if you want to buy a property that way. But, how much is in your retirement account? Are you willing to shift all or most of it into an investment property? Talk to some lenders and mortgage brokers. Include your CPA. 

How do you Handle Money?

While determining whether you’re financially ready to invest in Santa Rosa rental properties, there’s more to consider than the amount of money you currently have. 

You’ll also have to think about your record of managing debt, paying bills, and saving. Can you demonstrate that you handle money responsibly – when you have it and when you don’t have it? 

As you begin to grow your portfolio and accumulate additional real estate investments, there will be a growing number of expenses to cover. Cash flow will be important to your overall earnings, but the money you earn in rent will not always cover your expenses, especially not in the first years of owning your investment. You’ll need a strategy for meeting expenses, and you’ll have to understand how to balance expenses against income. 

If you’re doing that already, you’re financially ready to invest. 

Be prepared. You’ll be ready to invest when you have saved some money and developed a plan for how to spend and protect it. This starts with creating a budget and learning how to manage available cash and debt so you’re well-positioned to accumulate more wealth in the long term.

You’re Thinking Long Term Financial Gains 

This is not an easy way to get rich quickly, and if you’re planning to buy Santa Rosa rental real estate in order to earn some quick and fast cash, you’re going to be disappointed. You’re also going to find you’re in no way financially ready to invest. 

Real estate investing earns you money over the long term. Prepare to hold your investment for years if you want to earn any money on it.  

Focus on the end goal and not your immediate earnings. Santa Rosa is not a market where the monthly rent you earn, high as it will be, is likely to cover all of your expenses. You may not see positive cash flow for years. That doesn’t mean you aren’t making money. 

If you understand this and you’re prepared for it, you’re financially ready to invest. 

Even the process of buying a property can be lengthy. You may have to invest some time and money in preparing it for the rental market. Once you’re renting it out, be prepared to hold that asset if you want to earn real long-term wealth. Don’t invest because you need a rent check every month. That’s a sure sign you aren’t ready.   

Real Estate is Not Always a Passive Investment

Passive IncomeYou’ll need to have reserves and resources throughout the leasing, management, and maintenance of your investment property. The cost of owning a rental property is more than buying that property. 

There’s a lot of talk on the internet and in the interviews about real estate being a “passive investment.”

In some ways, we can consider buying and renting out a property passively. But, you aren’t going to buy the home and walk away. You’ll need to be involved with your investment, even before it’s rented out. This isn’t easy, and it’s not without stress and discouragement, and a lot of financial investment. 

Anyone can buy some stock at any minute. Investing in real estate, however, takes planning and strategy. It takes some real capital. This is not an easy market to buy into, and despite the idea that you’re investing passively, you cannot sit back and simply let your property work for you. It’s not going to repair itself. It’s not going to collect rent from tenants. 

Prepare to continue investing in your investment property. You’ll need money for repairs, marketing, and improvements. You’ll need to cover the expenses that come with a vacancy and tenant turnovers. 

How will you pay for the roof that needs to be replaced or the appliances that need to be upgraded? Can you keep up with landscaping and pest control? Can you keep the property secure when no one is living in it? Can you pay for eviction if you need to remove a tenant

You need reserves and savings. If you don’t have that, you’re not financially ready to invest in Santa Rosa rental homes. 

How are you feeling about where you are financially? 

Buying a rental property as an investment is very different from purchasing the dream home that you’ll live in. It’s easy to become emotional about homes, but this isn’t your home. This is your investment property. You need to think about it as you’d think about a business. Business decisions are financial decisions.

We can help you identify a profitable rental property that matches your budget and your financial position. We can help you understand the local rents and talk about how quickly it will take to find a tenant. If you can objectively assess a property and work with Santa Rosa property managers to identify potential rental homes, you’re ready to invest. 

If you’d like some help and guidance, please contact us at Prestige Real Estate & Property Management. We manage homes in Sonoma County, including Santa Rosa, Windsor, Sebastopol, Petaluma, and Rohnert Park.