It’s no secret that real estate is an excellent investment. It can grow and diversify your portfolio with positive cash flow potential and provide you with a steady income stream if you’re willing to work for it. But how do you find the right property? And what are some of the pitfalls that you need to avoid? This article will tell you everything you need to know about making money in real estate. We’ll share our best tips, so you don’t make costly mistakes. Let’s get started.
1) Find the Right Property Type
First, you must find the right type of property to invest in. There are many real estate types, including apartments, single-family homes, duplexes, mobile homes, and more. Each comes with its own set of pros and cons. For example, single-family homes tend to be less expensive than apartment buildings. They also require less maintenance. However, they may not be as appealing to tenants because there is only one bathroom or kitchen. On the other hand, larger multi-unit properties like apartments have much more appeal to renters, but they are usually more expensive to purchase. So you need to consider your budget, goals, and experience before choosing a particular property type.
2) Research Your Market
The next step you want to take is to research your market. This will help you determine whether or not the real estate price point you’re considering is affordable and desirable. To do this, you should look at comparable sales data from similar local markets. For example, if you are searching for corporate housing, look at the prices of hotels in surrounding areas. Do the same for a retail store when evaluating a shopping center. Researching your market is an important part of buying property. The more you know about it, the better prepared you’ll be to make wise decisions.
3) Be Willing to Negotiate
There is always room to negotiate. Some experts say the average buyer gets 38% off their initial offer. You might not think that you’d get so lucky. But if you try, you never know what you might get. Remember, this is your first time purchasing real estate, and you likely won’t have much experience doing it. This means you are probably lacking leverage. So don’t expect to get full value for your purchase. Instead, use the knowledge you gain through research and negotiations to get a fair deal.
4) Understand the Tax Advantages
One thing to remember is that tax deductions are available for investors who purchase rental properties. That means that even though you are paying taxes on your profit, you’ll still benefit financially in the long run. What’s more, the depreciation of the building (the actual structure) is typically deductible over several years. So you can deduct the cost of the building every year. However, remember that your home office deduction is not allowed in most cases. Also, the interest paid on your mortgage is only deductible up to $1 million. Anything above that is considered a personal expense.
5) Hire a Realtor
A good realtor makes all the difference when investing in real estate. A professional can help you find the best deals and also handle the paperwork. They are knowledgeable about the laws, regulations, and requirements associated with different types of properties. Plus, they’ll have a network of professionals who can help them find the right properties for you. It’s common for realtors to have access to private listings and those that are not available to the general public. If you’re going to buy multiple properties, it pays to hire a realtor.
6) Figure Out How Much Money You Need
Your lender will give you a pre-approval letter based on the amount you’ve told them you could afford. However, you will need to factor in the closing costs. These include the appraisal fee, title insurance, credit report, etc. You also need to account for the down payment. Typically, lenders require 20% of the total purchase price. Some financial institutions may allow you to borrow 80% of the property’s value. It’s important to understand that you don’t need a large down payment to invest in real estate. You need enough money to cover your initial investment and then some.
7) Buy Properties in Good Condition
You don’t want to spend too much money fixing up properties. That’s why you should only buy ones in good condition. When looking at properties, focus on the following:
- Roof and siding
The condition of each of these will impact the property’s value. At least 95% should be in good shape to justify a purchase. Most investors aim for 100%. If you find a property that needs repairs, prioritize the ones that make the biggest difference to your bottom line. For instance, fix the roof before anything else. Then work on plumbing issues and exterior damage. Once everything has been taken care of, you can proceed to cosmetic fixes.
8) Choose Your Investment Strategy
Once you’ve researched, found the right property type, and negotiated a great price, you now need to choose how you plan to manage your investments. Common strategies include:
- Single-Family Housing
- Commercial Real Estate
- Multi-Family Housing
Each strategy has its pros and cons. Decide which one is right for your situation and goals. As a beginner investor, you shouldn’t put yourself in a position where you’re forced to manage a single unit. Instead, opt for a condo or townhome. While there are fewer units, it’s easier to manage, and you have less responsibility and lower risk.
9) Research the Area
Before buying your property, do your research on the neighborhood. First, check the crime rates, school districts, and local amenities. Ensure that the area is safe and that the schools are high quality. Next, look into the community culture. Is it family-friendly? Do people walk around together, socializing? Or is everyone glued to their smartphones while walking? What kind of shopping options exists nearby? Does the area have restaurants, bars, parks, and other attractions?
10) Be Ready to Manage the Rental Process
When renting your investment property, you must be ready for the process. This means creating a checklist of tasks that need to get done. For example, you’ll need to order the furniture and appliances, ensure the utilities are set up and perform any needed repairs. Also, it’s important to create a tenant screening process. The last thing you want is to rent to someone who will cause many problems.
It’s easy to become overwhelmed by the thought of investing in real estate. You need to take things slow and learn as you go. Pick one property, have a professional manage it for you, and then add more once you feel comfortable.
Are you thinking about investing in real estate? What would you like to learn next? Let us know in the comments below!