by: Remie Longbrake | published: Nov 2, 2019
We here and see a lot about real estate investing these days. It’s made all the rage, from HDTV to weekend seminars, it sure is popular. But why is that? Well did you know that most of the world’s millionaires and wealth in general were created from real estate?
Just look at the story of McDonald’s. They may sell hamburgers, a mediocre one at that, but the real business is the land for which it sets on and the lease assignments McDonald’s makes through its franchises. Real estate may be for the big boys, but they all started somewhere. If you want to know where to start, this is a good guide to get there.
A lot of people consider investing in real estate a great investment option. And why not? The ultimate aim of buying an investment property is to increase your wealth and increase your financial abundance.
If you think property investments are devoid of any risk whatsoever, you’re setting yourself up for failure. Most amateurs think that investing in property always delivers stellar returns. That couldn’t be further from the truth. Like any investment, there are always risks. It’s about knowing about those risks and mitigating them as much as possible.
The key to getting great returns lies in being aware of the facts that result in a sound real estate investment, and focusing on buying only the best real estate given your aptitude and acceptable to risks involved. Even then however, the unexpected can and will occur. It’s about putting safe guards in place so when they do happen you can be ready for them.
In this guide, we will go over some of the key elements to real estate investing. Be sure to take notes and evaluated in investing in real estate can be a good option for you and your family.
Understand there are many, many kinds of real estate to invest in. From single homes, to apartment complexes, to land, to sub leases, storage unit and more. Each variety has it’s benefits and draw backs. From there consider how you will invest in a property. If its a single family home, in what condition for instance? Starting out, it’s generally safer to buy home that doesn’t need much repairs. Unless you are a contractor or can sufficiently evaluate repairs. You also need to realize the value after repairs and what the market values of surrounding properties are going for. Buying a home in good condition might be a good renter home for a family. Perhaps buy a duplex, live in one unit and rent out the other unit to someone. If you calculate your payments right, if it possible to get the tenant to pay the entire mortgage and you live mortgage free while they pay it down for you. Not bad huh?
Know what you can afford
This is crucial. Single family homes are great, but it’s also an extra burden on your finances. Most people can’t afford another mortgage, therefore they never start investing in real estate. It is important to know what you can afford on your own, get an idea on rates and see what is available. Another option is to raise money from other people. Although, a bit more advanced, it greatly increases the options to buy bigger properties. Of course you’ll have to share profits with other investors, but it can be a wonderful opportunity to build wealth for all involved. You may feel weird asking family and friends for money, but if the deal makes since you are actually helping them out too. It should be a win-win.
The great thing about real estate I love, is you only need a portion down. Say 10 - 30% of the entire value of the properties. This is called leverage, and leverage is your friend! The bank will let you know what is needed down. The bigger the property however, the less they look at you and your personal income and credit score and the more they look at the cash income of the actual property. Get enough investors involved, plus the banks portion and it becomes very possible to get a big property such as an apartment complex, perhaps valued in the million-plus range. You and investors putting down $200,000 to 300,000 may be enough. Personally, I would not want to pay all cash for a property because I want to be able to buy other properties. If all my cash is tied up in one deal, then that limits my options.
Well you’ve got this far. There is no rule of thumb whether to raise money or find the property first, as long as your know your area and your budget I personally would want to money available first, otherwise a deal could be lost to another investor who has the funds available right now. When buying an investment property, you will have the option of going through the grind either by yourself, or with the help of a real estate agent. You don’t have to use an agent, but for the newbie I definitely recommend one. Actually, you may have to agents involved. You have the listing agent and the buying agent. Let them know your area, and yes start local, local being within an hours drive. Let them know your criteria and have them set you up on their automatic email list. Definitely don’t leave it to the agent only however. Talk with family, friends, co-workers, let them be your scouts. Also, with so much info online, search regularly on Realtor.com, Zillow, Redfin, and others. Once you find a property set up a date with the listing agent or have your agent contact them and arrange a walk-through.
Once on the property, due your diligence. You probably should bring along an inspector or fellow investor who has some properties under their belt in that market. Take notes, pictures, even video if allowed. Record pluses, minuses and hazards.
Do make sure that you view all properties and neighborhoods that fall within your budget with an unbiased approach, meaning due your home work. Compare selling prices of other home or properties of that type for that neighborhood. If you want more info on the resources I use, let me know.
These two factors should be considered in detail as far as buying a used property is concerned.
While buying such a property may seem like a bad idea, it may actually turn out to be great as you will get the opportunity to increase the value of the property by fixing the place up, which can increase your returns for capital growth and rental income.
Closely inspect the walls, ceiling, flooring, and the fixtures at the place. Check for cracks, leaks, or any other repair they may need. Take a look at the amenities provided. Make a note of the repairs needed.
If you’re not sure about being able to do this yourself, you will do well by hiring a professional building inspector to do this on your behalf by conducting a thorough inspection of the property to find any potential glitches.
You could also engage a skilled trades person who is licensed to carry out the repairs and has adequate insurance to protect you against poor workmanship.
Before arriving at a final decision, it is necessary that you consider other properties that are available in the same vicinity, and consult several locals and real estate agents about it to understand if a certain part of the area is considered better than the others.
Ensure you do your homework well and refer professionals whose opinion can be trusted. You can also look online for independent information on average rents, property prices, demographics, and so on.
If you’re buying an investment property, you’ll want to rent it out at a good price and for a profit over your mortgage, provided renting is your investment plan. Making your house attractive to tenants can be easier of you pay attention to a few important details. The idea is to refrain from personalizing the house, but making it more pleasing to the eyes for a majority of people in general.
Start with the color of your walls. Choose neutral tones as they agree with most people. Keep your bathrooms and kitchen in good condition. Upgrade the amenities if they’re outdated. Deliver what you promise and you will never be short of tenants who will be happy to live in and take care of your space.
Property investments are meant for the long term and it is suggested you do not get swayed by a temporary rise in property prices when deciding to invest. Invest only if you feel you can stay committed to the property for the long haul, as that way you will build up equity, which will enable you to purchase another investment property.
This, in turn, will help you find a balance between being financially stable and having enough money to live your life to the fullest. My allowing others into your deals, you also help other families meet their expectations as well.
Do take into account the fact that unlike stocks and shares, you cannot simply sell a part of your investment property when you need money. Real estate investing is high illiquid, meaning you can’t just get your money out when ever you need it. It’s a slow process, but over time it can and has been returns of the stock market depending on how you view returns.
The other benefits that real estate offers is benefits in taxes. This is where fortunes are also made. See the government sets up rewards for those who provide housing, therefore decreasing the investors tax basis in the process. There are so many rules it’s impossible to say everything, however depreciation is a big one. So if the ability to refinance and take those earnings tax free.
There are several ways through which you can pay for purchasing an investment property. If you have the money ready, you can make your payment in cash without having to deal with banks or loans.
However, if you don’t have all the cash needed or you’d rather utilize greater leverage, you can make the initial down payment, and take out a loan to cover the remaining cost or get other investors involved and take on bigger opportunities.
The biggest thing investors often forget about is the exit. They get so caught up in the initial deal that they forget about how they will sell the deal in the future. It’s important and really required in my cases to know exactly what the property will be used for, whether a rental, quick flip, or BRRR for instance(get into that later). Don’t forget to think about what you’re going to with the property before you buy it. If your plan involves selling soon for a higher price, know what the market will accept and plan accordingly.
It is always best to have multiple plans for your investment with a view of how will make money of it. When you start, know what your exit strategies are going to be, and plan for them from the very beginning.
As exciting as it is to buy an investment property, it is equally challenging. A slight overlook on your part can result in the entire procedure of making a purchase turning into a nightmare. It is important that before taking the plunge you make sure that your finances are in good health. Only then will they propel your hopes of improving your cash flow in the right direction. The above points should be helpful in understand some basic concepts about real estate and how it can impact your investment ambitions.
If you want to know more about investing in real estate, please reach out to us!