Investing in real estate has become the hot ticket item with 55% of Millennials wanting to start investing in real estate. The great thing about real estate is that there are many different ways to invest.
There is the type of real estate you invest in. There are different ways you can finance the purchase of the property. Finally, there are a few different ways you can profit from the investment.
Are you not sure how to invest in real estate? There are a few dos and don’ts that can help you get started. Use this guide to help you know what you need to do and not do when you finally decide to invest in real estate.
Do Your Research
Never, ever, EVER, blindly invest in a piece of real estate. You always want to make sure you do your due diligence.
Look into the property’s history. First track the ownership records. Does the current owner have the right to sell you the property? Check that there is no one else who could claim ownership.
Check the maintenance history on the property. This will tell you if there will be any code enforcement issues. It will also help you determine what type of investment the home will need for repairs.
Do Talk to Someone More Experienced
This is another part of doing your research. Talk to someone who is already successfully investing in residential real estate.
You can take this opportunity to learn from their mistakes. They can also provide guidance in the event you encounter a situation you don’t know how to handle.
You may even find that you can turn a mentor into a partner. then you have another’s party’s financials to invest in more expensive properties.
Do Diversify Your Investments
You can use your investment in real property as a way to diversify your investment portfolio. Adding this source of income to your stocks and bonds gives you more security and flexibility.
The great thing about this diversification is that the real estate market and stock market are not directly related. So when one industry is struggling you can depend on the other.
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Don’t Get to Focused on One Asset
Don’t let yourself invest all of your assets into one risky real estate property. Sometimes the real estate market is a volatile one.
This means that one day your property is worth a lot, and the next day, it’s not.
Don’t Think You Have to Be Hands-On
Do you want to invest in real estate but you don’t have the time to research property, arrange the financing, and then spend time on maintenance and tenant management? Instead, you could invest in a REIT.
A real estate investment trust is a company that you invest in. Then you sit back and let them handle the details while you collect dividends.
Do Consider Rent to Own
This concept requires you to sign a contract where you agree to rent a home for a specified period of time. Then at the end of the contract, you agree to buy the home.
A certain percent of your monthly rent is accounted for as your down payment.
These types of agreements are great for those who don’t have the funds to buy a home. You just need to be sure to read the contract closely to ensure the terms of the contract are favorable to you.
Don’t Assume a Fixer Upper Is Right for You
When most people think about investing in residential real estate they get visions of HGTV house flipping. However, this isn’t the only way to invest in residential real estate.
To take this further, if you don’t have the time or experience then this method of investment is a terrible idea. To be successful you need a strong knowledge of home remodeling and renovation.
If you do have this knowledge, you’ll want a strong financial backing. These types of investments will seem like a money pit for a while before they become profitable.
You also need to keep in mind that the reality shows about house flipping are not totally accurate. These homes will give you a set of false expectations.
Do Consider Rental Property
If you have the finances to buy a home outright, you can then decide to rent out the rooms or the entire home. You’ll want to make sure to keep the expenses low though.
If you decide to go this route, make sure you learn the landlord/tenant law. Otherwise, it may end up costing you dearly.
You’ll want to keep the property in great condition, respond quickly to tenants, and even hire maintenance help.
Do Consider Buying Vacation Properties
Instead of buying a rental property, you could look into buying vacation property. You still need the manage the property and keep it in great condition.
Except your tenants will be living in your property for a shorter period of time.
The advantage is that you don’t have to sign long term leases with your tenants. You may also be able to make more profit from the shorter periods of stay.
Do Get Digital
No matter what your hopes are for your real estate investment property, to be successful you need to get online. For property that you want to sell consider online property listing sites like realtor.com, Trulia, or Zillow.
For property that you want to rent out as vacation property then consider a site like Airbnb. Once you register your property you can manage your bookings calendar through the site.
You can even customize your rates so maximize your profits during peak demand times.
Don’t Forget Commercial Property
If you only want to invest in residential property that is ok. However, that isn’t the only type of property out there.
Retail and office buildings are considered commercial property. You’ll find that commercial real estate is riskier, but offers greater rewards.
You can charge more rent to businesses. The lease terms also tend to be a lot longer than their residential counterparts.
Do Consider Your Own House as an Investment
If you don’t have the ability to invest in a lot of property, use your home as your first investment. You don’t have to constantly buy and flip homes to be a real estate investor.
Sometimes, buying a piece of property and then holding it for a while is a smarter way to go. In the meantime, you can steadily pay the mortgage and live in the home.
You could also rent out the extra rooms in the home. Then the rent you charge would pay the mortgage for you.
Do Make Strategic Renovations
There are certain renovations that have great returns in value for their cost. These are the improvements that should be done if you decide you want to flip homes.
The trick is to make small improvements that make a big impact. The idea is to make smaller touches like making minor kitchen upgrades.
Don’t go all out and rip out the kitchen cabinets. Instead, try repainting the trim. Or you could put in energy efficient appliances.
Speaking of paint, this is a great way to improve the look of the entire home. So repaint the rest of the rooms and the outside of the home.
Another great investment is to replace the windows. This can help make the home more energy efficient.
Don’t Forget About the Taxes
Don’t forget to factor in the property taxes when determining the financial feasibility of a piece of property. You don’t want to be surprised by a bill that you can’t afford.
You also need to learn about the tax deductions you can claim. Such as from paying mortgage interest, operating expenses, those taxes we just mentioned, and insurance.
Taxes can get quite complicated, so your best option is to hire an accountant. They can advise you on what you can and cannot claim. Then you won’t have to worry about getting in trouble with the IRS.
How to Invest in Real Estate, Now You Know
Knowing how to invest in real estate will help you increase your wealth and personal net worth. However, you need to approach it the same way you would any other investment opportunity.
You want to make sure you do your research before investing. Then make sure your investment portfolio stay diversified to help limit your risk.
Be honest with yourself about your abilities, both financial and maintenance wise. Then make your investment choices to fit those skills. Otherwise, you risk costing yourself more than your initial investment.
Have you already invested in real estate that needs repairs? Use these 10 tips to help you sell the home.