You can see examples of people who made a fortune investing in properties, however, there are no guarantees you will earn a huge profit just because you buy a house. Like any other business, there are various risks associated with real estate investing. Plus, this endeavor requires a good amount of money (the amount depends on whether you want to resell or rent the property) so you really need to be careful with your investment. If you want to save yourself from failure, here are a few things you need to know before you jump into real estate investing.
Pick your real estate type
There are various types of real estate you can invest in: commercial, residential, industrial, mixed-use and retail real estate as well as REITs, mortgage lending and sale/leaseback transactions. Each type of investment has its pros and cons you need to study before you write your checks. Make sure to read on each of these types so you don’t get too confused while examining investments and coming across all the terms used.
Control your emotions
When you’re buying a home for yourself and your family, you can think with your hear instead of thinking logically. This is totally fine when you’re choosing a property where you’re going to live, but it’s not a good strategy when buying your first investment property. Don’t let your emotions affect your decision-making and consider your purchase a purely business investment. Think logically, negotiate and don’t hesitate to give up if the price is too high. Remember, the odds of making a profit go in your favor the lower the price of the investment.
Do your homework
Depending on the type of investment and the clients you’re targeting, you need to do your homework when it comes to the property. Pay special attention to the location and make sure it will attract your targeted clients you’re trying to sell or rent to. The property also needs to be appealing to the market in order for it to reach the expected return on investment. Ensure you used proper research techniques and take an analytical approach based on market factors, not your personal preferences. This will definitely help you make the right decision.
Think long term
If you’re opting to invest in a rental property, don’t expect any profit at the beginning. All your money will be going into mortgage, taxes, expenses and upkeep. However, once you pay off your mortgage, you’ll start to receive a regular monthly income, so think long term. Many people today choose to get into duplex investment business because it allows them to live in one portion of the property and rent out the other. It’s a great way to buy a property for yourself and invest at the same time while using rent money to pay the mortgage.
Even if you have the means to invest in a million-dollar property, pick something smaller for your first investment. A property in the lower- to mid-range price bracket is your safest bet (think somewhere around $150,000 for your first real estate venture). Don’t forget that you’ll also need to set some money aside for the renovation costs and upgrades before you rent or try to sell. Additionally, keeping your investment smaller will help you at least break even on your investment which is not bad for your first real estate property. And, even if you don’t hit your expected price, your loss will not be catastrophic and you’ll be able to try again.
Secure funds for down payments
Down payments for investment properties are much higher than those for the house you live in. In most cases, you’ll need to have at least 20% of the price ready for a down payment. Additionally, investment properties have stricter approval requirements. Before you pay your down payment, think about the renovation expenses as well.
Consider a loan
There are various loan options when it comes to getting the money to invest in your first investment property. If you choose the right option, it can make a real difference to your financial situation. While different loans come with different pros and cons, your best option depends solely on your situation. However, you still need to consider things like the freedom to split the credit or whether your loan provides you with the line-of-credit facility.
Just like any other business, real estate investing can earn you some serious profit or it might turn out to be a huge loss. It’s almost always a gamble, but if you use these easy-to-follow tips, you’ll boost your chances of winning big.