If we were taught one thing over the last couple of years, it is that no matter what is going on in the world, there are always investing opportunities. This is especially true in the real estate market. Considering this, and the fact that investing in real estate can be very lucrative, many people have decided to give it a go. Before you dive in, know that there are many factors that are in play, and that it can be a big risk. If you have done your homework, and want to start investing in real estate, here are 5 beginner tips for real estate investing.
Do Your Research
The most basic, yet most important of the several tips for real estate investing is to do your homework. When you are looking to invest tens of thousands, or hundreds of thousands of dollars in a property, you surely do not want to make any mistakes. One small mistake could end up costing you your entire investment. With this in mind, it is crucial do conduct lengthy due diligence. Do not be afraid to ask the seller for more information about a property or parcel before buying it.
There are some things you can look for. For instance, start by having the real estate agent provide you with all the information they have on it. Also, look into the condition of the property. Beware of buying a house site unseen. You should also check with the local tax authority to see if there are any unpaid taxes. It is also a good idea to know if there are any liens outstanding, and if so, how many. You surely do not want any surprises after you purchase it.
Because buying a house is a very detailed process, you may want to get input from an accountant or financial advisor. For instance, if you are a real estate investor, you should know about the Augusta rule. If you are renting out your home, the Augusta rule can save you taxes on your rental income. Plus, if you are buying and selling multiple properties, you definitely need to know about how a 1031 exchange can help you defer any capital gains.
Location, Location, Location
The most popular motto when it comes to buying real estate is location, location, location. While everyone knows about this phrase, it definitely holds true, and is one of the best tips for real estate investing.
Real estate investing all comes down to the location of the property you invest in. The location can be the key to your financial success. If you buy a property or apartment on the wrong side of town, it can take years before you realize any type of return. You may have problems renting it out, or worse. You may get stuck with it because you can’t sell it. If you buy a property in the wrong spot, your profits will disappear.
When looking at locations to buy, think about what that specific area has to offer. If you are looking to flip the house or rent to a family, how are the schools? Is it in a secluded and quiet neighborhood? What type of traffic is there? Be sure to check crime stats as well. Real estate agents can be a great resource for this. However, agents selling a house are not legally able to disclose everything. They will not be able to tell you about crime statistics (in some cases).
Another thing to do when deciding on a location, and depending on your investment goals, is to image the location in the future. If you decide to purchase a house that is less expensive because it is in a less than optimal neighborhood, do you think that the area will be nicer in the future? People can make a ton of money in real estate investing my buying up property in shady neighborhoods with the hopes of them becoming gentrified.
What are your legal obligations?
There is a ton of legality included in the home buying process. As a real estate investor, you need to understand your legal obligations, as well as possible liabilities. You will have different legal obligations depending on what you do with the property.
If you are investing to flip the property, you must do everything to code or spec. You have to rely on licenses plumbers, electricians, and more. While you may be able to do some work yourself, some components of your house must be inspected. This can also limit your liability. If you do the wiring yourself and something goes wrong for the next owner, you will be at fault. If you instead rely on a licensed professional with insurance, you can pass the liability on to them.
There are also a ton of legal obligations when it comes to renting out a property. The above is true in this scenario as well. You can not take any shortcuts remodeling or constructing a home. In additional to this, if you decide to rent, you have legal obligations as a lessor. For instance, you need to figure out payment, what will happen if your renter is late paying, and also have to worry about the small things like garbage removal. It is always a good idea to work with an attorney to draft any lease documents so your bases are covered.
Understanding your legal obligations, as well as possible liability, is one of the major tips for real estate investing.
Evaluate Your Finances
Before you pull the trigger on a fixer-upper or a nice vacation rental, take a deep look at your financial situation. If you need to improve your credit score, or build an emergency fund, you may want to hold off on investing in real estate. Ask yourself realistic questions as well. Be sure to be true to yourself. If you have $50,000 to invest, a small property that can have a quick turnaround may be better than something more capital intensive.
You will also need to determine your risk tolerance. Do not try to take risks for profit because you may not make the best decisions.
Investing in real estate requires large amounts of capital. You may not see a return on it for several years. Be sure you can live without the money you have tied up in real estate. In addition to this, the real estate market does fluctuate so you may not ever get back what you put in. As a beginner, evaluate your personal finances before deciding to under take a real estate investment. Meeting with a financial advisor is always a good idea. Depending on the amount of capital you have, an accountant may know of ways to get partners or investors. This way, you can use someone else’s money to invest in real estate so you don’t have to use as much leverage.
Do Not Rush
The last of the most important tips for real estate investing is to not rush into anything. There are so many external factors you will need to consider. Rushing into a decision can ruin your investment return and personal finances.
Before you buy, make sure your finances are in order, the property checks out, and it is in a great or promising location. You should also take into consideration market conditions as well as price trends. At the end of the day, a property may not be a good investment decision after all.
Because a real estate investment can be risky, is capital intensive, and you may not see a return for several years, make sure you take our time. Conduct all of your due diligence and never rush into a deal. Obviously there are some nuances to this. Some great deals may not be available for long, so you need to balance this out. This goes back to understanding your risk appetite as well as how knowledgeable you are about the process.
Additional Resources for Real Estate Investors
There are so many free resources out there that can help you invest in real estate. First, there are sites like Zillow that give you pertinent information about properties. You can see estimated market value, property tax history, plot size, and much more. Be sure to look on a site like this before making a purchase.
If you want to start investing in real estate, but are not sure how, there are other options for you out there. Instead of buying a property, you can invest in other financial assets to get you exposure to this type of market. A Real Estate Investment Trust, or REIT, could be a great option for you. There are also financial services from FinTech companies that let you investment in real estate properties themselves. This way, you can still invest in real estate, but not have to worry about a lot of the risks.
Another popular way to invest in real estate is something called real estate wholesaling. This is when you enter into a contract with a seller to buy their home at a specific price within a set time frame. During this window of time, you then sell the contract to another party at a higher price. You get to keep the difference.
Real estate wholesaling comes with plenty risk, however will not tie up a ton of your capital. Be sure to work with an attorney if you plan on using this strategy. Real estate contracts are complex, and you need to make sure you include all the necessary stipulations. You can even word the contract to state that you won’t have to purchase the property if you don’t find a new buyer of the contract.
Tips for Real Estate Investing – Summary
Investing in real estate is a complicated process. There are many factors to consider, including your personal financial situation, and the broader markets. Before you dive into a real estate purchase, be sure to do your research. It is also important to understand you legal obligations, possible liability, and your personal finances. Lastly, make sure you take into consideration property location and be sure to not rush into any type of deals.
Real estate investing has many risks but can be very rewarding. Be sure to understand all of the details. Don’t be afraid to reach out to real estate agents, real estate brokers, accountants, attorneys, and financial advisors for more insight.