Are you considering real estate as a good investment? Below are the simple tips
1. Start by purchasing a home of your own.
If you are not already a homeowner, it is probably a good idea to purchase a home before you purchase an investment property. There are several reasons, but perhaps the most important is that you will learn the process of purchasing a property by actually buying one. It is not unusual for investors to turn their first home into their first investment property, because the property and the market become familiar entities.
2. Research potential properties before purchasing them.
When buying a rental property, there are several key features that you should be looking for. The first is sustainability. Is the property in solid condition and is it going to stay that way with minimal upkeep? The second is the location. Yes, location is extremely important for most rental properties. You need to ensure that your tenants can get to where they need to go and that the property is near commonly used retailers and service providers. The third is the average income of the area. This is different from physical location, because you should keep in mind that a high rent area is definitely a better location than a low rent area. And, in high rent areas location is often less of a concern than in low rent areas.
3. Know the market you are buying in.
Before you purchase an investment property, take the time to closely examine the real estate market in your area. Depending on the market, you may want to adjust your investment strategy. For example, if you are interested in flipping a home – you wouldn’t want to do it in an area where the market is slow and sellers’ are finding their homes still on the market after 12 months. On the other hand, if you are considering purchasing a multi-unit property, you wouldn’t want to make that purchase when the market was leaning toward the sellers. This would result in you paying significantly more than the value of the property. These are just a few examples of how paying attention to the market in your area can truly make a difference in the type of property that you decide to purchase and when you decide to purchase.
4. Location, location, location.
When looking for an investment property, you should be much more concerned about the location thanyou are about the amenities offered by the property. Realize from the beginning that you can add amenities, but unless you want to move a building – you cannot change the location.
5. Look for safe, crime free neighborhoods.
When you are considering areas in which to purchase investment properties, look carefully at the crime records and the turnover in other properties. A safe neighborhood will bring higher rents than a neighborhood known for its crime. And, if the neighborhood is marked with crime, consider adding a security system in the building.
6. Have a plan.
A smart real estate investor will have a careful financial plan, indicating when properties will be purchased and when they will be paid off. Most investors do not want to pay for properties over the standard thirty years. Instead, they try to pay the property off within a few years in order to reap a greater return on their investment. If you are considering investing in real estate, be realistic and set serious goals for each step of your plan.
7. Understand what impact the economy has on your investment.
When determining the area in which you are going to buy, consider the economy of the area carefully. For example, if you know that a major company will be relocating into or out of the area, it is probably a good idea to wait and see before purchasing a property there. Also, if you know that a shopping center is going to be built within walking distance, there is a good chance that your property will become quite popular.
8. As a new investor, your goal should be to minimize risk.
This is much more important than generating cash. One way to minimize risk is to work with someone who is familiar with the real estate market in your area in order to help you determine whether or not the property that you are considering purchasing would make a good investment and whether or not the time is right to buy.
9. Always be learning.
Just like almost every other business, when you are starting out you do not have access to the tricks of the trade. Read everything that you can get your hands on, and more importantly you need to make contacts in the real estate business. This could include other investors, real estate agents, financing specialists and even contractors. A good way to start is to attend any real estate seminars being offered in your area. You never know how the people you meet there might be able to help you to succeed with your own investments.
10. Put in the time necessary to learn the industry.
The average real estate investor spends around three years learning about the ins and outs of the industry. There are many regulations that you will need to become familiar with, and there are many different types of financing to investigate. It also takes time to build a network of professionals to help you build your business. Take the time necessary to learn before you invest, so that your money is being wisely invested.
11. Budget your time wisely.
If your intention is to purchase a home and restore, repair or remodel it in a short period of time before re-selling the property, you need to pay attention to the time that the work on the property is taking. The problem that many first time investors run into with house-flipping is that they did not expect the work to take so long. When delays occur, and mortgage payments are accumulating in addition to the cost of materials and labor it can definitely make for a stressful situation. Be realistic with estimates, and always have cash at the ready should you encounter an unexpected expense.
12. Consider flipping a house “as is”.
When flipping or buy-repair-sell is your thing, you might want to consider the advantages of flipping a home as is. Believe it or not, this technique is particularly popular among investors who purchase properties when the market is favoring sellers. The advantage is that there are no out of pocket repair costs, and the property can be sold much faster. Areas where this technique would be the most beneficial to investors include neighborhoods that are currently in transition or where redevelopment has become a priority.
13. Always insist on a complete property inspection.
Often times, a buyer will not become aware of pre-existing problems with the investment property they are buying until after the inspection. It is a good idea to include a clause in your purchase agreement that allows you to back out should serious problems surface during the inspection.
14. Don’t sell too soon.
One of the most common mistakes made by real estate investors is that they turn over properties too soon. It is completely natural to want to take advantage of a hot market. However, in an area where the market goes through fairly regular cycles, investors often generate more cash at the time of sale when they hold onto the property for a year or two in order to take advantage of tax benefits while waiting for the market to hit its true high point. This is particularly advantageous when the property was purchased with nontraditional financing that requires minimal payments for the first several years of the loans.
15. Make sure that you are working with an experienced real estate agent.
One common problem that first time investors run into is that while agents tend to be very knowledgeable about the local market, they tend to be less aware of the intricacies of financing. So, always talk to your financing company before you sign a single paper regarding the purchase of a property. This will help you to avoid unexpected pitfalls.
16. Be prepared before you talk with a real estate agent.
Realize going in that their primary goal is to get you to buy a property through them. More than likely they will try to get you a property that they have listed. Be on the lookout for agents who do not seem to have your best interest in mind. You need to work with an agent who will show you properties that meet your criteria – even if they have to pass up their own listings.
17. Handle your investments like a business.
As an investor, it is never a good idea to purchase a property that you are paying for out of your own pocket. The purpose of the property is to generate money, not cost you money. Become comfortable with this philosophy if you want to be a successful investor. Certainly, you may need to cover the down payment on your first property out of pocket. However, if you are purchasing a rental property you should plan to have your monthly rents cover the expenses that you incur as a result of the purchase. This is smart investing, and it will generate a significant cash flow in the long run.
18. Learn how to flip houses quickly.
When purchasing a short-term property, your goal should be to sell the house as quickly as possible. For one thing, this will reduce your outgoing cash flow. One thing to remember is that you should quickly identify a list of necessary repairs. Invest as little cash as possible to complete those repairs, and then place the property back on the market. One rule of thumb is to make only cosmetic repairs,so that the property is more appealing to prospective buyers.
19. Form a good relationship with real estate agents.
One of the reasons that you should be forming a good working relationship with a specific agent or team of agents is that sometimes, an agent will fail to inform the property owners when offers come in that are less than the listing price. As an investor, you will be offering less than this price. Therefore,if you make an offer through an agent that you do not know there is a good chance that your offer will never actually be seen buy the seller.
20. Keep it neutral.
One of the traps that first time investors run into is that they tend to renovate properties based on their likes and dislikes. This can lead to a significantly larger investment than what was initially expected. It is more important to focus on the kitchen and bathrooms and to choose fixtures that are affordable and neutral, while still adding to the cosmetic appearance of the property.
21. Learn how to do some basic repairs yourself.
A well prepared investor who plans to make a long term investment into a rental property would be very wise to consider attending some classes on basic maintenance and repair. While it may seem easier to hire a handyman at first,the costs of small repairs will add up over time. Therefore an owner who does small repairs will save more of their earnings in the long run.
22. Don’t become attached to your properties.
Never be afraid to make an offer on a property that grabs your interest. However, be careful to leave your emotions out of the process because you could very easily end up spending more than you intended on a particular property if you allow yourself to become attached.
23. Have realistic expectations.
If you are new to real estate investing, you need to be very realistic about your earning expectations. For example,it is unlikely that a profit over and above the mortgage and tax payments will remain in the owner’s pocket for very long. Instead, the property will require maintenance and repairs. Therefore, do not expect to start making money over night with a rental property. With a property that the owner intends to flip, the profit will be realized as soon as the property sells.