Real estate can be one of the most rewarding forms of investing- if you get it right. Many people don’t think twice about investing in real estate and then get stuck with a property that provides them with no cash flow and very little return on their investment. Doing your research thoroughly to ensure that real estate investing is right for you is paramount to being successful in the game! Here are a few essential things to know about real estate investing to make sure you get it right the first time.
Type of Property
Consider the type of property you want to invest in, the sense of whether you want commercial or residential, and the categories within each. It may take time to figure out whether you wish to invest in residential or commercial, but it’s worth it to better your portfolio. Once you’ve chosen, be sure to look at evaluation tools, such as comparative market analyses, as well as thoroughly researching the property and its neighborhood to ensure the investment will be worth your time in terms of profit maximization.
Return on Investment
Do you want a simple profit margin on flipping the property or consistent cash flow as your form of ROI? There are benefits and pitfalls to both, but having tenants as opposed to flipping is a great way to have a continual source of secondary income. Naturally, this takes longer to see a profit in your ROI, but once you do, it is a longer-term profit. Flipping is excellent if you don’t want to deal with tenants. With renovations, you don’t have to worry about the property any longer, once you’ve sold it.
Buying a house for investment is different from buying a home in which to live. With investment properties, the deposit is usually around 20%, as opposed to the 1-3% deposit you likely paid for your own home. Ensuring you have the funds for the down payment is incredibly essential, as it’s something a lot of people don’t realize about investment property!
Keep Funds on Hand
Along with the deposit, you have to assess the funds you’ll need readily available at any given time to do repairs on the property or to renovate it if that’s what you’re looking to do. Remember that if you find tenants, your cash flow will only be serving the mortgage for a while, so you will have to have an external savings pot ready for those annoying fixes in the property!
Choosing Good Tenants
To keep those repair costs down, you’ll need to find good tenants who respect your property and the rules you set out for it. If you don’t have the time to do it yourself and you have the funds available, acquiring the help of a letting agent is an excellent idea as they take the weight of having to find great tenants off of your shoulders.
Investing in real estate for the first time can be scary, but as long as you keep your wits about you and ensure you have enough funding, it doesn’t have to be so daunting!