With the real estate market regaining some of its prestige over the past few years, many entrepreneurs are turning to the industry as a viable investment opportunity. Although the inherent risks are still there, the potential for a strong return on your investment is still present, too.
Here are six tips for first time real estate investors:
1. Create A Solid Plan And Stick To It
As with any worthwhile investment, the first step is to solidify an actionable plan and put it into effect. Use this time to answer a series of questions, including:
- What do you ultimately hope to achieve?
- How much capital do you need to begin?
- How do you plan on managing your property?
There’s no correct answer here. It’s important to forge the path that best accommodates your immediate needs, your long-term goals and your abilities within the real estate market. You don’t even need a clear view of the road to success. As long as you have a solid plan and an outline to follow, you’ll be able to measure your productivity, gauge your own success and maintain forward momentum.
2. Find The Ideal Location
You’ve probably heard this repeated ad nauseam by now, but location really does matter in real estate investing. There’s a marked difference between buying a property in a low-income district or one within the center of the city, and these two projects are a world apart when it comes to maximizing the return on your investment.
3. Long-Term Rental vs. Immediate Sale
Investing in a property for immediate sale, which is typically referred to as flipping, is one of the most common and quickest methods to see a return on your investment. There is typically a low amount of risk involved, at least in comparison to other investment avenues such as the stock market, and there is plenty of fortune to be made from flipping a house.
Conversely, buying and holding a house for long-term rental results in recurring income, which can be used to finance future investments, pad your savings account or even to pay your personal bills. Those who maintain multiple rental properties can make a comfortable living that requires relatively little in the way of career upkeep.
If you need help making the decision, don’t hesitate to consult with an investment specialist. Seeking professional solutions in long-term rental management, property preservation and short sale services can go a long way in protecting your investment and maximizing your return.
4. Take Advantage of Tax Breaks and Incentives
The best and most successful investors know how to utilize taxes to their favor, and the real estate market is no exception. Your exact tax breaks depend on a myriad of factors, including your city and state, but matters are complicated even further when it comes to capital gains and selling your investment property. As such, it’s best to consult with a tax professional before making any major moves.
Most landlords of rental property can write off any mortgage interest along with:
- Property depreciation
- Actual repair costs
- Insurance premiums
- Traveling expenses to visit your properties
- Supplies for your home office
Again, your specific deductions and tax breaks are subject to a number of external factors and should not be taken lightly.
5. Protect Your Property
The very first thing you need to do to protect your asset is to get homeowners insurance. While this topic warrants an entire post on its own, I’m sure we all understand the importance of having a solid insurance plan.
As a real estate investor, depending on your risk tolerance and skill sets, you will have different preferred strategies for utilizing insurance. You can insure against pretty much everything today, from fires and natural disasters, to break-ins. Some even opt for an umbrella policies to increase liability coverages.
Regardless of your strategy, it’s important that you understand the many options that are available to you. And as always, it doesn’t hurt to consult an insurance professional that specializes in real estate.
6. Buy In Bulk
Consumers are used to the idea of buying in bulk, but it’s a strategy that is underused when investing in real estate. Often used with the idea of capitalizing on recent foreclosures, hundreds of thousands of which are currently owned by our nation’s banks, there are benefits and disadvantages to the bulk real estate investment strategy.
Although savvy investors have the potential to make more money in a shorter timeframe, the practice of wholesaling still includes the typical risks of the real estate market. Purchasing numerous foreclosure properties through a bulk deal is a great way to get started in the industry, but a series of bad investments could easily place you in significant debt.
Maintaining Competitiveness in the Real Estate Industry
With real estate experts highlighting the recent growth of rental property rates and evenness among home sale prices, the current market offers a level of stability that hasn’t been seen in quite some time. A wise new investor to real estate would still do well to take their time before jumping on any opportunities or finalizing any deals, but you certainly don’t want to dismiss these prospects just yet.