So you’ve decided that property investment is the right move for you. Good news! The real estate market is booming, and there are plenty of opportunities to get started with a small budget. That being said, as with any strategy, property investment has its pros and cons. It’s not just about picking a house or apartment that catches your eye – it’s also about choosing an asset that will grow in value over time. As with any strategy, the key to success is preparation. The following 5 tips will help you get started on the right foot when it comes to investing in real estate.
Table of Contents
- Know Your Goals
- Research the Market
- Estimate ROI
- Check Out the Contractor(s)
- Set a Budget
Know Your Goals
The first rule of thumb for any strategy – real estate included – is to know your goals. Without a clear idea of what you’re trying to achieve, it will be difficult to judge the best path forward. Investing in property is a long game. It’s not something you can do overnight, or even in a year. Rather, it’s an investment in the long-term value of the asset. As such, your goals should reflect this – are you looking to build equity? Will the investment eventually be used as collateral for a loan? Are you looking to generate cash flow now? Knowing your goals will help you set rules of thumb for which properties make the most sense.
Research the Market
The real estate market is often cyclical – and that means that its best to pick a good time to enter. It always pays to do a little research before making a purchase. First, you want to make sure that the market you’re investing in is a good one – some markets are hotter than others, which can make it easier (or harder) to sell your investment down the line. Apart from general market research, you also want to take a look at rental rates in the area. If you’re planning to rent the property out, you’ll want to make sure there’s enough demand for the rental price you’re planning to charge. You should also take a look at the average cost of utilities (gas, water, electricity, etc.) in the area – you want to make sure there’s enough room in your budget for maintenance.
If you’re looking to make a profit from your investment, you need to figure out what your ROI will be before you sign on the dotted line. This is especially important if you plan to finance your property investment with a loan. Most lenders will want to know what kind of return on investment you can expect – and some will even have an ROI calculator you can use to plug in your numbers. Mortgage lenders like Fannie Mae and Freddie Mac also have requirements for how much you can borrow based on your income. Your income and debt-to-income ratio (DTI) will determine how much you can borrow on a mortgage. The more income you have, the more you can borrow.
Check Out the Contractor(s)
Before you close the deal, it’s a good idea to do a walk-through with the contractor responsible for the renovations on the property. This will give you a chance to make sure that the contractor is doing quality work, and that they’re on track to finish on schedule. It’s also a chance to get a feel for the contractor’s skill set. If you’re investing in a fixer-upper, you want to make sure that the contractor has a clear plan for how to turn the property into a livable space – and that they’re capable of executing it. You’ll want to look for a contractor who is organized and detail-oriented – both crucial qualities in a contractor.
Set a Budget
When it comes to real estate, it’s all too easy to go over budget – especially if you’re buying a fixer-upper. Unless you have a clear idea of how much you’re willing to spend, you’re likely to get caught up in the excitement of the moment. Some experts recommend that you take a look at your monthly cash flow and set aside a percentage for your property investment. This will help you make sure that you stick to your budget. It’s also a good idea to shop around for financing options. You may be able to get a lower interest rate by applying for a mortgage through a bank or other lending institution.
Real estate is a tried-and-true way to build wealth. It’s also a long-term strategy, so you’ll want to make sure that you’re prepared for the journey before you jump in. It pays to do your research and plan ahead – and it also pays to know your goals and stay on track financially. When it comes to real estate, it’s always a good idea to go in eyes wide open.