8 Real Estate Investment Tips For Beginners
Buying an investment property or having some real estate investment is an excellent idea if you have money to spare. It enables you to build long-term wealth while opening an opportunity to earn extra income month after month.
Your investment is secure, lucrative, and profitable because real estate markets seldom run in losses. Not surprisingly, thousands of Americans join the real estate investment bandwagon every year. Some do it to diversify their portfolios, and others want to grow only in this domain.
While everything about investment properties sounds great, you cannot undermine the risks. They are always around, just as with any other form of investment. You may find them even more daunting as a beginner, specifically in the unpredictable post-pandemic market.
But experts have some helpful recommendations for beginners looking to buy an investment property. Here are the ones you can rely on to pick the best deals and minimize your risks.
1. Get started with education
Real estate investment is not a passive game, but it requires active understanding and knowledge. Remember that investment is not about the upfront cost of your property.
You will have to spend much more on taxes, fees, and maintenance down the line. Starting without digging deeper can land you in trouble eventually. You must get started with education before diving into the industry.
Although you need not get formal training, there are plenty of opportunities to learn. Research online, talk to industry experts and be open to learning from your mistakes. You can even join an investment association in your area.
2. Define your goals
You must define your goals for the short-and long-term before buying your first investment property.
Know why you want to invest in the first place, whether you want to stick around for the long haul, and where you visualize yourself in terms of growth. Picking the right property will be easier when you have clarity of your objectives.
You must also decide whether you can commit to managing the property because it is an additional burden if you hire managers for the job. Keep your goals and timelines realistic to get a smooth start on the journey.
3. Research the market thoroughly
This one is a no-brainer as every newbie must go the extra mile with research. Consider it a rule you must follow even as you gain more experience with real estate investment properties. Cultivate the habit early to build a healthy portfolio and cut your risks down the line. You must give attention to the trends in the local market and do your own due diligence checking the area, property history, and prospects. Due diligence can save you from picking unprofitable deals and getting trapped with wrong decisions early in the journey.
4. Build a reliable team
Do not expect to make it big alone with your first investment property and even as you buy more. You will need a reliable team of advisors, realtors, and contractors to lead you on the road to success. Each of these professionals can support your goals and help you pick deals that match. You can ask questions about sustainable market rents, after-repair value (ARV), rent-ready repairs, lease terms, and more. With clear answers and guidance, you can save money, time, and stress over the short and long term.
5. Choose the property wisely
Experts suggest that first-time investment property buyers should think wisely when selecting the right property. Residential rentals make an ideal choice for first-timers. Look for places with more bedrooms and multi-family homes.
You can even live in one unit and rent the other units. The option qualifies you for a low down payment, and you can save on interest as well. Even better, you can pay off the mortgage with the rental income, and the place will be yours sooner than you imagine. You can take care of the maintenance needs of the property easily.
6. Consider your cash flow
Your cash flow is another crucial factor to consider while buying an investment property. You have the right deal when you do not have to worry even if the markets were to tank tomorrow.
An investment with a positive cash flow is the one that gets you there. This way, you will have the cash flow coming even when there is a market slump due to uncertainties like the pandemic. Be safe with the right option by considering cash flow for the long haul.
7. Prioritize target ROI
Besides cash flow, target ROI is another factor to prioritize when buying your first rental property. Ideally, you must chase a target ROI of 15% or more because it is the minimum you need to be profitable in the long run.
Also, remember that the target rent of the place should be at least 1% of the price of the property. This way, you will not have to worry about regretting your investment choices in the future.
8. Begin where you are
The best piece of advice for a beginner is to start where you are. Essentially, it means you should begin with a local deal as your first purchase. It is logically easy to explore and close deals around you rather than travel to another part of the country.
If you are in Florida, buying a Florida investment property should be a priority. The second aspect of starting where you are is by sticking with your beginner budget. Try to play with your own money, and stay small with borrowings even if you have to take a loan for the purchase.
Every investor envisions owning a downtown luxury hotel, but it isn’t the right one to start unless you are a billionaire. Experts recommend beginning with a single-family rental and moving up the ladder from there.
Finally, keeping your first property decision simple should be a priority. Look for a realistic price, a positive cash flow, and conservative leverage. Consider it a learning ground, and be open to the idea of accepting mistakes. Remember that there are no perfect deals for investors. Instead, you have to make them perfect with your wisdom and smartness.