Real estate investing can do wonders for your financial future. But just because investing in real estate has a great reputation for delivering stellar returns and building great wealth doesn’t mean that all investments are created equal.
The secret to getting those great returns lies in understanding what makes a great real estate investment and focusing on buying only the best real estate. Sort through the clutter by considering these important tips.
Are You Ready to Invest?
Investing in real estate is not for everyone. While you don’t need to be listed on the “Forbes Richest” list to buy a rental property, it’s still important that you have a firm grasp on your personal finances before investing in real estate. Real estate investing is not a “get rich quick” scheme, but an adventure that can span decades.
Only you can know if you are ready to start investing, so take a good inventory of your life, and if real estate can fit into your investment portfolio — great! Take time to get educated. Read real estate books, blogs, websites and forums to get a firm grip on just what real estate investing is and how the most successful investors use real estate to build wealth.
Do You Have a Plan?
Perhaps the biggest reason many investors lose money — whether in stocks, mutual funds, real estate or business — is due to lack of planning. You wouldn’t consider driving from Memphis to New Orleans if you knew only that the direction was “somewhere south.” A plan will help you get from where you are right now to the place you want to someday be.
What Kind of Property is Right for You?
Real estate investing is an exciting field because of the many different niches and strategies you can use to customize your plan to fit your personality and position in life.
Perhaps you enjoy risk and would prefer a “fix and flip” business? Or maybe you are looking at long-term stability and would prefer investing in single-family rentals. Or, maybe you don’t want any involvement at all and would rather just “become the bank” by lending money to other investors and earning a passive return. There are hundreds of ways to invest in real estate, so find the strategy that best fits your lifestyle.
What is the Neighborhood Like?
You’ve surely heard the old cliché, “location, location, location.” The importance of this phrase is no less vital when choosing a real estate investment. You don’t need to necessarily buy a house in the most expensive area of town, but it’s important that you understand what the location is like.
How Will You Finance Your Property?
There are many different ways you can pay for an investment property. If you have the money, you can pay all cash and not deal with banks or loans.
However, if you don’t have all the cash needed or you’d rather utilize greater leverage, you can supply just the down payment and take out a mortgage to cover the remaining cost. If you do use a loan, be aware of the term and interest rate on the loan you are taking, and stay away from adjustable rate mortgages as they may go up, causing your payment to rise dramatically.
Should You Self-Manage or Hire a Professional Manager?
Whether or not you should manage your property is a personal decision largely dependent upon your plan, personality, skills and availability. A typical property manager may cost between 7 and 10 percent of the monthly rent, but a good property manager should also decrease vacancy and have systems in place to make repairs less expensive. If you are undecided, always budget in management; if you decide you don’t like it, you’ve already planned for it.