Before investing in real estate it's vital to ask a lot of questions.
Always Be Aware Of All Costs Involved
It is not cheap to make a real estate investment. This is especially the case when looking at all the associated costs. Most people believe that just the upfront purchase cost is what has to be considered but this is not actually the case. With most properties, you have countless extra additional costs to remember, like yearly upkeep, basic maintenance, expenses, and upgrades. If you also have to take out a commercial real estate loan to afford the property, even more extra expenses appear.
Always factor in all costs before you make an investment decision.
Carefully Select Property Type
After you calculate how much money you have available for an investment, it is time to choose the property you put your money into. The real estate market is vast. You can buy rentals, you can turn into a landlord, and you can easily set your new property as a rentable Airbnb. Then, you can choose commercial real estate. Look at the various property types to see what is more appropriate for you.
Selling a home for cash to a real estate investor has become a significant portion of real estate sales. There are going to be folks who need to get out from under their home quickly.
The most important thing in real estate investing is the location. You should never buy a property in any area just because you are offered a good price. Due diligence is mandatory. Check market value, the conditions of the neighborhood, and what the location actually offers.
You should also look at the competition. See if the property you invest in is in a good spot for the purpose it suits. For instance, when you buy vacation rentals or residential rentals, you have to look at the proximity to important way-of-life factors and popular attractions. If you choose a business rental, look at parking, demographics, and population.
Don’t Forget About Protection
You should seriously consider setting up an LLC (limited liability company) when you buy real estate. This helps a lot with risk management. The ownership of the property falls under the LLC. In the event that something bad happens, you are not responsible at a personal level. In addition, the LLC will protect retirement funds if something happens on your property.
Think About Growth
Investing in real estate means in most cases that you will have to sell the property. It can be immediately flipped or you could just hold it for a longer time. At the end of the day though, you want to make a profit.
The goal with real estate investments is that you have to sell the property for more than you initially paid. Property value has to be increased by making additions and upgrades. As you increase the value of the property, it is easy to sell at a higher price tag. You can get some of the best real estate investment advice by following other experts in the industry. These folks are accustomed to making money and by following their lead, you'll put yourself in a better position to do the same.
Look For Emerging Neighborhoods With Rental Properties
For many beginners, rental properties are very profitable. They are a very easy way to start working in this industry. There are numerous emerging neighborhoods that can be considered for such an investment. The growth potential is very high and there are even some tax incentives that sometimes exist. As a buyer that invests in the emerging neighborhoods, you simply have a much higher possibility that you can maximize profits.
Always Aim To Diversify Investments
It is always a very good idea that you invest in something that you are very familiar with. However, when you just do that, you actively limit profitability. Usually, this happens because real estate investors limit themselves to a very small geographic area.
When you invest in other cities or states, there is so much more opportunity that exists. Cover a larger geographical area and also diversify the investments that you make. This helps you protect your real estate portfolio from the huge volatility associated with the local markets.
Consider Investing In Single-Family Rentals
If you want to be safe and take on low risk, the single-family rental is definitely something to consider. This is because there is a very high possibility you will attract a correct tenant. While most people want to live in a beautiful house, most people cannot actually afford it. The single-family property has always appreciated so we can say that it is one of the safest possible investments today.
Be Extremely Careful With The Advisors You Pay
In so many cases, when people make real estate investments, they trust some paid advisors like wealth managers, brokers, real estate attorneys, and tax accountants. They might give you some suggestions that are not at all great simply because they are very safe.
Keep in mind that the stockbrokers do not receive a payment when you invest in some real estate properties. Since the paid advisors do not make a commission, they will only recommend some investment options that are not that great for some people. When you make any investment, make sure that you conduct your own independent research.
Be Careful With Over-Leverage
When you invest in more real estate properties, it is time to be very careful with your finances. This is because there is a huge problem that sometimes appears. The investor has all its funds tied up. When we combine this with mortgages, we are faced with a recipe for disaster.
The best approach when you have many properties is to keep some of them free. In the event that there are some financial problems, you can sell one. Also, you should never over-mortgage your properties. Remember that whenever you take out a mortgage, you agree to debt. Sometimes, you take on way too much debt and you cannot recover from your decisions. This is actually much more common than you might think when it comes to real estate.
Quickly Solve Maintenance Issues
As a landlord, you need to have an open relationship with the renters. This is mainly because of the fact that you want to be aware of maintenance issues as soon as possible. Generally speaking, whenever there is something that has to be fixed, it is better to get it done sooner rather than later.
You can arrange a walkthrough with the tenant that happens 2 times per year. During this walkthrough, you can check parts of the house that are normally ignored, like under sinks, areas around toilets, and so on. When you find a very small leak, get it fixed. This will actually save you a lot of money in the long run on much more costly repairs that would surely be needed.
Don’t Underestimate Crime Rates
Always research the crime rates in the area where you want to make a real estate investment. This is because areas with higher crime rates cannot attract really good tenants. You can even use incentives like move-in bonuses and still fail. You are particularly interested in homicide and home burglary rates. If you see that the rates are high, you should stay away from the area and look for somewhere else to make a good real estate investment.
Create An Emergency Fund
There are many expenses you have to deal with after you invest in real estate. It is a certainty that you will be faced with some problems sooner or later. This is why an emergency fund makes a lot of sense. Usually, annual expenses tend to range around the 50% mark of the gross rent amount. Ratios can be different when you rent higher-end real estate properties. However, it is a good mark to take into account.
Create an emergency fund to cover your expenses for a number of months. This helps you deal with most situations in which cash fund problems appear. The real estate investors that had such a fund set up experienced no problems with the coronavirus pandemic. Those that did not are now struggling and need to sell some of their properties.
Build A Business
Last but not least, when you invest in real estate, you need to treat everything that you do like a business. Similarly to any business out there, real estate investments require purposeful execution, management, and planning. You can only run a successful business when you know what you are doing so you need to constantly educate yourself.
It does not matter how large or small you want your real estate business to be. You have to take care of everything, ranging from creating the emergency fund we mentioned to being aware of the tax laws that have to be respected.
Final Thoughts on Real Estate Investing
Investing in real estate can be quite lucrative if you know what you're doing. On the other hand, it is very easy to make mistakes and lose a lot of money as well. Make sure you have a solid understanding of what is going on in the local real estate market before diving in feet first.
Other Helpful Huliq Real Estate Articles
Get more sound guidance in these previously published Huliq real estate articles.
Should I buy or rent a home - one of the more difficult financial choices in life comes when you have to decide between renting and buying a home. Get some sound guidance to make the best decision.
How to buy a home during a pandemic - when the economy or some other unexpected event occurs it can turn real estate markets upside down. A perfect example is a Covid-19 pandemic. See what you need to know to make sound buying decisions.
About the author: The above article on real estate investment tips for beginners was written by Boris Petrov. Boris is an avid internet marketer with expertise in multiple subjects including real estate.