Things to Know Before Investing in Real Estate
- May 25, 2021
- 6 min read
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Real estate is easily one of the most volatile, exciting, adventurous careers one can enter. There are numerous paths to go down to become a real estate investor and an unending number of options available to you to explore in this field of work.
There are some decisions you must make before just diving into the real estate market. Mainly, what do you want to do? Are you interested in being a realtor? Would you rather try and flip houses, or do you just want to get some property and be a landlord or property manager?
Thankfully, there are several tools available online to help you step by step on getting started. However, keeping your main goals and career specifications in mind, you should know some basic things before starting a career in real estate.
- Plan of attack: Some people are paranoid, and some are prepared. There is nothing wrong with being prepared. Knowing what all your costs are before doing any investing is particularly important. Knowing how much you have and knowing exactly how much you need to borrow is crucial. You want to make sure you keep yourself in the safety zone when investing.
- Do not buy high at first: Even if you have a lot of money you can spend, experts say that you keep yourself in the low to the middle range for your first investment property. There are going to be curveballs or expenses that you are not ready for your first few homes. You need to have some extra funds available to stay in the safe zone until you get more experienced. One great piece of advice is to look into investing in a Real Estate Investment Trust (REIT) or mutual funds.
- Do not listen to your heart: When looking at investment homes or office buildings to buy, stay emotionless. It is way too easy to pay more for a house than you needed to because you did not realize you let yourself get attached to a property.
Keep in mind that this is a business decision, not an emotional one. This is not the home you will not be your primary mortgage payment, you will not live there and raise a family; this is a temporary purchase you are going to try and make a profit on by paying back your investment.
- Try and have multiple investments going at once: Do your best always to have more than one property or long-term investment going at once. This will come up; properties will sell for more or less than you expected. It is good to have another property to help balance some of the chaos that can happen.
While seeking information in general about real estate is useful, figuring out what your goals are is essential. Do some research, consider your options, then go down the rabbit hole of whatever you find most interesting.
Here are some basic categories to consider. Comparing your strengths and weakness with what you need for each type of real estate position is probably your best option for starting.
If you are a handyman or woman, you might want to consider looking for ownership in fixer-uppers to repair yourself then flip for a profit. You can easily flip a single-family home without a construction background, but the more you can do yourself, the more money and fees you will save on labor, giving you a more significant profit.
Some houses may require a lot of cleaning and fixing, but they will most likely be a lot cheaper due to owners just wanting to get rid of it. You be amazed how after some basic cleaning, the fixer-upper you just bought can be repaired and sold. Even with a basic construction background, you should be able to fix basic cosmetic issues and bump up the property’s value.
Fixing and rebuilding houses yourself will also be profitable because you can research the area on your own and make sure your fixer-upper meets current trends to maximize your profit. Trends in different locales can come and go fast, but you can easily keep up if you are doing it yourself.
Also, certain areas will have homes that vary in style and presentation. If you are in control of the building, you can customize everything to fit the area best.
If you are looking more for a long-term investment for slow building of profits, you can buy some rentals. Depending on your location, it can be relatively easy to buy a small rental property or buy large old family homes or apartment buildings to rent them out.
Doing the math can be easy in figuring out whether a rental property will be worth it long term. Getting the Capitalization Rate and other information can help you see how long it will take you to make money back on your investment. Valuable tools like this can help you buy rentals with ease, knowing that you will be in the profit zone in a few years.
An especially useful thing to do is while you own your rental properties, you can do minor renovations to boost the property’s value, so when it comes time to sell, you make the most profit off your investment. Like with the house flipping, you can make many minor improvements to properties to make them more valuable to a tenant. Again, having a little do-it-yourself knowledge can help you big here.
Let us say you’re not too handy around the house. You may be more of a salesman and are not the type of person who wants to have any of their own money at stake. Being a realtor for a real estate company might be the right choice for you.
There may be times when you need to do some decorating and spiffing up at a property you are trying to sell, but for the most part, you get a finished product that you simply have to sell. If you are a people person and are the type of salesman who could sell snow to an Eskimo, real estate work might be for you.
Let us look at a more hands-off approach but still an excellent option for real estate investing. Because the internet has made using platforms to move funds around easy, you can now simply invest money with a pool of people anywhere you would like.
Non-direct investing allows you a hassle-free way to just put some money down on investment properties. You and several other investors can combine funds into properties all over the world. This is a relatively safe, no-risk way to do some real estate investing. I this sounds great to you, simply look up Real estate Crowdfunding.
There are many scams out there that promise you a great career in flipping houses without you having to spend a dime. The truth is whether it is an inheritance or a business loan, you are going to need to put some money upfront.
Unfortunately, mortgage insurance does not exist for investment properties. So, unlike with a residential house you are buying for yourself to live in, the down payment of three percent will be more like twenty percent. However, do not let this discourage you.
There are several options for loans out there for people looking to buy investment properties. It helps to have all previous debt cleared so you can start this investment process with a clean slate. This will also give you the option to split your first investment debt up to make it more beneficial to you. A business loan and a few credit cards may help with interest rates, for example.
Real estate is truly an exciting field to work in. It is one of the few careers that is constantly changing and always has innovations creating new unique opportunities. You can never stop learning about real estate, but it is good to have a little base knowledge that is consistent no matter what avenue you end up pursuing.
So, whether you build your portfolio in long-term or short-term investing, just be sure to visit a financial advisor and plan for everything, know how much you will need to borrow, and do not pay too much for a house or apartment you think you love. Remember, there is no harm that can come from being extremely prepared. So, find your preferred avenue and get out there and buy, then sell, sell, sell!
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