The main point in investing in real estate is putting your money to good use today and reaping benefits in the future. While the principle may seem simple – you buy properties, earn money through rent, and then buy even more properties – it’s essential to approach this process wisely, especially if it’s your first investment property.
Although there is no one-size-fits-all solution for real estate investment, just like any other, a few rules of thumb can help you start your investment journey fruitfully and make this experience less stressful and relatively less risky.
In the article below, you will find several must-know property investment tips for beginners that will help you grow a substantial portfolio and minimize your risks.
Apart from evaluating additional costs such as an investment that will occur (maintenance, yearly upkeep, utilities, taxes, etc.), you also need to select the type of property you want to invest in, research the location, order an appraisal, and get a home inspection before buying. Continue reading to learn more about beginner investing in real estate.
Know Your Numbers
The first step in real estate investing is evaluating the costs you are likely to incur. When you know your numbers, you can easily find a property that will generate positive cash flow and will not absorb all of your profits.
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Some of the essential numbers you need to be aware of include mortgage payments, vacancy rates, repair and maintenance costs, property taxes, insurance, and utility bills.
Once you know what to expect and how much money you need to generate positive cash flow, you can start looking for the right properties.
Decide What Type Of Property You Want To Invest In
The next step is deciding on the type of property you want to invest in – single-family homes, duplexes, triplexes, fourplexes, or larger apartment buildings. The decision will be based on numerous factors, including your investment goals, risk tolerance, and available capital.
If you are a beginner investor with limited capital, it may be a good idea to start small and gradually increase the number and size of your properties. On the other hand, if you have significant financial resources, you may want to consider buying an apartment complex or a portfolio of smaller rental properties, and there are plenty of helpful guides available with information if you are looking to invest in buy to let property.
Research The Location
Once you decide on the type of property you want to invest in, it’s time to choose the location. It is one of the most important factors affecting the value and profitability of your investment property. When selecting the location for your future rental property, make sure to consider the following factors:
- Crime Rate. Research the crime rate in the area where you plan to invest. The lower the crime rate, the higher the rental demand and the rental prices.
- Employment Rate. The employment rate is another crucial factor to consider when selecting the location for your rental property. The higher the employment rate, the higher the demand for rental units and the higher the rental prices.
- School District. Families with children are usually willing to pay more for a rental unit located in a good school district. If you are planning to invest in a family-friendly neighborhood, make sure to research local schools.
- Transportation. Good transportation links are another influential factor to consider when choosing the location for your rental property. The closer your property is to public transportation, the higher the rental demand and the rental prices.
Order An Appraisal
Once you have picked the location for your investment property, it’s time to order an appraisal. An appraisal is an estimate of the market value of a property.
Ordering an appraisal before buying an investment property will help you determine whether the asking price is fair and whether the property is worth investing in.
Get a Home Inspection
In addition to ordering an appraisal, it’s also a good idea to get a home inspection before buying an investment property. A home inspection is a thorough examination of a property to identify any defects or problems.
Although a home inspection is not required when buying a property, it’s highly recommended because it will give you a better understanding of the condition of the property and will help you avoid any unexpected repairs or expenses in the future.
For instance, there might be potentially harmful chemical gases such as radon that can’t be determined without professional inspection. Radon is an odorless and colorless gas that can significantly harm your health. Radon naturally occurs in the ground, which can be a real problem for homeowners. During a home inspection, accurate professional radon monitors are typically used to check the radon gas levels in the house.
Have A Contingency Plan
When investing in real estate, it’s always a good idea to have a contingency plan – a plan of action that you can implement if something goes wrong.
For example, if you are unable to find tenants for your rental property, your contingency plan may involve renting out the property at a lower price or taking out a home equity loan to cover the mortgage payments.
Diversify Your Portfolio
Last but not least, it’s important to diversify your portfolio when investing in real estate. Diversification is a risk management strategy that involves investing in different types of assets.
When diversifying your portfolio, you can invest in different types of properties, such as single-family homes, duplexes, apartments, vacation homes, or larger apartment buildings.
Investing in real estate can be a great way to grow your wealth and secure your financial future. However, it’s important to approach this process wisely, especially if it’s your first investment property.
Make sure to understand the costs and risks associated with this type of investment and choose the property wisely.
If you still have questions, you can consult with a real estate broker or a real estate agent to address your concerns before diving into the investment process. This way, you can also evaluate your financial situation and figure out the type of property you should invest in. Happy investing!