The many things to know before you take the leap and invest in your first property.
Investing in real estate can be rewarding, thrilling, and sometimes it can be risky. Many people have invested money in stocks and bonds, which is a lot different than real estate investing. If you had a chance to read our last blog, then you know that real estate has many advantages over investing in stocks and bonds. However, regardless of how smart a real estate investment might be, you are never guaranteed a return on your investment. For this reason, there are many things you should consider before taking the exciting leap into real estate investing. We have put together the top five of them, so please read on and learn more.
#1. Know if it’s the right option for you.
First-time real estate investors sometimes have an overly simplistic view of real estate investing. As an example, they sometimes have a belief that once they buy a rental property, once they have the property rented, their work is done. Surprised and unprepared, they quickly learn how much time and effort it takes. It is import for any new investor to realize this upfront because hiring a property manager will eat into profits and could sour the result.
#2. Don’t be tempted to buy a fixer-upper.
The idea of buying a distressed or “cheap” property and fixing it up is very alluring. However, if this is your first time dabbling in the real estate investment world, you may run into some surprises. For example, new investors may need to temper their expectations regarding how much it may cost to renovate a badly damaged property. Sometimes investors find it is better to find a home that is slightly below the market price that only needs some small repairs and benefiting from a quick flip.
#3. Don’t buy a property based on price appreciation.
We have seen it too many times. A new investor buys a property with the belief that its value will magically appreciate over time. They have bought into the idea that a piece of property in an up-and-coming neighborhood is ripe for a big pop. It could very well happen, or that property may remain flat or even lose some value, it happens. We all know, or should be aware that the market can swing drastically. There are never any guarantees any property value will increase. It may be smarter to focus on finding and buying a property that will generate cash flow now versus waiting on the market to favor you.
#4. Know the operating costs of the property.
There are a lot more costs associated with a real estate investment than just the mortgage, such as maintenance, repairs, insurance, taxes, etc. As a general rule, you should assume that operating costs will be equal to about half of the monthly rent.
#5. Keep your emotions out of it.
There is a big difference in real estate investing versus buying a home for which to live. Purchasing a home to live in is a very emotional thing. As a real estate investor, you are looking to make money not fall in love with a house. For that reason, the emotional response of buying a home must not be a factor. You should no longer have a strategy of finding a home that fits your personal preferences or needs. You need to think about what someone who may want who will be buying the property or of the tenants you are trying to attract.
While real estate is almost always a smart investment, it is not foolproof. You must do your homework and know what you are getting yourself into. However, if you are interested in investing in real estate, the first step is to get the financing you need. That is is where your new finance partner, Abbey Mortgage & Investments, comes in. We are your Colorado-based private lender. We have a variety of loans, we are very fast, and we loan money primarily on equity versus your credit score. If you have a reasonable deal with a considerable equity position, we can help you find the right loan for your needs. Contact us today, let’s get your real estate investing career started.