Investing in real estate can yield enormous profits but this sort of work comes with huge risks. Once rookie investors realize how unstable the real estate market is (especially now, in the age of the coronavirus) they give up immediately.
Luckily, there are a couple of tips aimed at beginners to ensure their first investments are smart.
1. Start with a single-family home
The question of which type of real estate is best as the very first investment bothers beginners. Like in every line of work, starting simple is the best way to go, so a single-family home is the best investing option.
Unlike an apartment complex, a humble family home is bound to bring in profits, as novice investors still lack the experience for large-scale investments.
After purchasing the home, you can either flip it or turn it into a rental. The latter option might actually be more lucrative in the long run because of the affordable housing crisis.
2. Get to know all of the financing options
The trick to becoming a savvy real estate investor is to know exactly when to buy a property. This means that you need to have enough funds to purchase a house or an apartment on the spot before other investors find about it.
Unless you have heaps of cash stashed away someplace, you might want to consider more than one financing option. If you wish to take out a bank loan, make sure you have a good credit rating. Moreover, hard money loans are easier to get but they usually come with high interest rates. Read more if you want to learn how to house hack.
3. Always have a budget
When you go to the supermarket, bringing a shopping list prevents you from buying unnecessary items and overspending. The same principle, albeit on a large scale, is true for the real estate market.
Setting a budget and sticking to it means you won’t overspend. Moreover, you’ll have enough funds for unforeseen repairs and other expenses that might turn up later on.
4. Location is key!
Often enough, inexperienced investors are willing to sacrifice location in favor of luxury or other amenities a real estate might have. However, this is plain wrong, as location sells. In theory, you could have a rickety shack in the middle of Manhattan and sell it for millions of dollars.
Before you start looking for properties to invest into, ask realtors which neighborhoods are considered the most desirable to live in. In smaller settlements, these are usually downtown districts, while in large cities, there are particular suburbs popular with buyers.
5. Legal matters and taxes
Purchasing an investment property is different than buying a house you are going to live in with your family. This is true in both practical and legal terms, as it’s somewhat trickier to comply with all the legislatures, from the national to the municipal level.
You’ll get better with fees and tax rates over the years but in the beginning, hire property lawyers to help you out. These professionals won’t just become your close business partners but your mentors for intricate legislation regarding investment property.
6. Conduct a market analysis
It is possible to analyze the market with a sufficient degree of certainty. The reason why such an analysis is necessary is that you don’t overpay a piece of property.
You’re an investor, so you need to get a good price in order to have a high ROI. After you are able to conduct an in-depth analysis of the local real estate market, you’ll know how much the desired house or apartment building is truly worth.
Moreover, you’ll get a better insight into the whole market, enabling you to easily determine in the future which properties are listed below their true market value. In the long run, this means you’ll have a higher return on investment.
7. Professional rental property management
If you are investing in a rental, you need to take property management seriously. Yes. Busing a property for a low price and flipping it fat for a profit sounds easy enough but things are different for a rental. Poor rental property management will actually make you lose money!
First of all, you need high occupancy rates in order to have a steady rental income. You achieve this by establishing a good rapport with the tenants, so be careful to whom you rent a house or an apartment.
Also, be ready to hear out the needs of tenants at all times, as they know best what sort of maintenance the property needs. If you are buying scouting out new property to invest in, hiring professional property management agencies would be the best solution.
8. Network as you go
Property investing is interesting and fairly easy. Because, you needn’t know much about construction, i.e. you are not going to act as a building contractor. However, you are going to meet a lot of people working in the industry, so use every opportunity you get to network.
In this sense, excellent social skills will get you far. From contractors to real estate agents, the people you meet on daily basis can give you advice about property investment and, more importantly, they will tell you of lucrative properties that turn up on the market.
Creating a real estate network, even though quick interactions, is one of the powerful tools investors have at their disposal. The importance of network is pronounced in beginners, as they are still learning the ropes. Also, you will learn which folks are dishonest and unreliable to do business with.
9. Turnkey properties are ideal for beginners
If you wish your very first deal to go well, then consider a turnkey property. Seasoned professionals will have chosen the right property in the right location and the right tenants. In some instances, you even get rental property management.
Essentially, a turnkey property is a great learning opportunity. It is because you get to observes how real estate investing works. It includes from choosing the right location to filling vacancies fast. Of course, the company you choose should have a good reputation.
We hope that you now have a clearer picture of how property investment works. As a beginner, you will have to face difficult market conditions brought but with a couple of savvy moves, you can come on top.