Real estate investing may look like risky business to some, and that isn’t completely false, because it definitely can be. But just about anyone who works smart enough, and hard enough, can use real estate investing as a way to increase their wealth. Smart people realize that future retirement based on a cash flow from a rental property isn’t a dream, it’s a real life possibility.
Now, before you jump in and get started investing, there are several things you need to take into consideration, to determine which investment or property, will be the best investment for you and your current financial situation. Here are 10 tips for getting started in real estate investing:
1) Don’t quit your day job just yet
It seems like common sense, but too many real estate investors have gone belly-up with their finances because they relied too heavily on turn around profit or rental streams of income, and then the market took a downturn, leaving them with not enough cash flow to cover their income needs. Until and unless you have enough diversity in your real estate investments to cover downturns in the market or tenants who don’t pay their rent, you’ll need to keep working your day job.
2) Go from personal residence to rental
A great way to get your feet wet with real estate investments is to put your personal property up for rent. If you plan to live in a house for a few years before turning it into an investment property, you’ll be better equipped to handle repairs on the house. Living in a property and making changes along the way is a cost-effective, long-term solution for getting started in real estate. You’ll also get better interest rates on the property if it’s your primary residence when you buy it.
3) Overestimate your costs
Things perpetually break down and need repairs in properties, and the home repairs inevitably cost more than you think they will. If you’re looking into real estate investing, make sure you have a fairly sizable cash reserve to cover the expected and unexpected costs of property management and repair.
4) Buy in working class areas
Look for properties in working class areas where rental properties don’t last long on the market. For example, if you live in the city, look for a property that would appeal to young graduate students or young workers.
You’re more likely to have your property sit vacant, costing you thousands of dollars if you buy in a neighborhood typically occupied by homeowners. It’s not impossible to rent homes out in nicer neighborhoods, but it’s easier to fill a property with tenants where rental properties have a higher turnaround rate.
5) Pick moderately priced properties
Keep in mind that expensive homes in sought after areas like the ocean front usually have low cash flow returns. You’d be better off investing in a more moderately priced property with a higher cash return.
6) Know the neighborhood
Don’t buy a property in an area you’re not familiar with. Know the history of the neighborhood, and do your research. Find out how the schools rank, what the crime statistics are, and if there is any noise or air pollution that could affect your ability to rent out the property.
7) Buy local
Unless you plan on hiring a property manager, take the travel distance into consideration when looking for a real estate investment property. Sometimes you can go months without having to make repairs or visit the property, but other times you’ll be at the property every day that week. It’s a lot easier to manage a property that is close to home.
8) Learn from the experts
If you’re looking at getting started with real estate investing, reach out to the experts in your community. Join a real estate investing club and reach out to experts online. Invite a local broker to lunch and pick their brain for ideas on your tab. If you want to be successful with real estate investing, surround yourself with successful real estate investors.
Also, constantly read new real estate books, blogs, and eBooks about smart real estate investing strategies.
9) Hope for the best, plan for the worst
When you own a property, it’s essential that you hope for the best but plan for the worst. Between expensive repairs and downturns in the market, you need to have a backup plan and money in savings to help cover life’s unexpected financial difficulties.
10) Plan on long-term investments
The longer you own the property, the greater your return will be. Don’t hop in and out of property ownership. A little bit of patience goes a long way to increasing your returns.
Real estate investing can be a rewarding and profitable business endeavor, but it can years for your property or properties to become reliable income streams. Make sure you’re getting a good deal on your investment property and that the property is increasing your net worth. Do the research, know the area, and ask for help from those in your community that have had success. Once you do make a decision on a property, prepare for when things go wrong, and have cash saved to cover the high cost of repairs or expenses. Stay on top of the market, and educate yourself so that you’ll feel more confident with your investment strategy.
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