Real estate investment is considered one of best ways to achieve a steady income. According to a Bankrate national survey, Americans consider real estate to be their most favorite way to invest money not needed for a decade.
Whether you’re a real estate agent or investor, getting into the investing game is a challenge that needs careful consideration, especially in the beginning.
There are many different types of real estate investments. Each has its benefits and drawbacks, but as long as you do your research, you will be able to secure your stability.
But before you take the first steps toward real estate investment, here are some tips to remember.
How to decide on a property
As an investor, it’s critical to work with the right people to capitalize on investment properties. An agent’s professional awareness about value, location and ROI of the property determines if the investor will make or lose money.
Whether you choose to work with another agent or go it alone — do your homework.
Look at 100 properties. Conduct extensive sessions, and look at each property carefully.
Looking at multiple investment properties in all sorts of areas allows you to get a better understanding of the worth of different properties. Doing so will also ensure that you buy a property with a high market resale value, which will consequently move you toward your financial goals.
Many successful property investors use the “100/10/3/1 rule.” Check out 100 properties and make offers on 10. Of these, perhaps only three will be accepted. Of the three, purchase the best one.
A hundred may seem like a daunting number. But the internet has made everything easier. You can now analyze properties efficiently from the comfort of your home.
Research the property
Make sure you have detailed information about the area where you’ve decided to purchase your property. Just because you know what the area is like doesn’t mean you know what its market value will be in the future, what return can you expect or how common the area is for rentals or resells.
Keeping in mind the amount of profit accumulation and what the rental returns will be like is crucial. A title search will provide all the relevant records about a property to the agent investor.
It confirms the legal owner of the property and any rights and restrictions against the estate title; for example a mortgage or access to the easements.
It’s always a good idea to select an estate inspector at an early stage of your home buying process, especially if you’re an investor. It helps you become prepared and allows you to arrange a quick inspection as soon as you find a property you want to purchase.
Depending on the type of land you want to buy, you may also want to hire other specialists such as structural engineers to help you decide whether the transaction is feasible and how much you would be willing to pay for it.
Talk to the neighbors if you can, and get insight from residents. Realtors very commonly tell you about the other offers on the property, but they aren’t always 100 percent honest.
One effective way to get an honest opinion about a property is to get an evaluation from another brokerage. If they aren’t receiving a commission, their opinion will most likely be unbiased.
Focus on one investment at a time
Two of the most common traits of real estate investors who never make it beyond their first venture are: they act impulsively and think they have to have it all in one night — or they are over-cautious and don’t act at all.
They attend one seminar and buy into the first crazy scheme they are sold without thinking it through and end up losing a significant amount of money.
Then there are the procrastinators who read all the books and watch all the DVDs, only to end up overloaded with information and unable to act.
The former can learn from their mistakes, and the latter are usually unable to overcome their fears and make successful investments.
The best an investor can do is find a happy middle. Take your time to look at as many potential properties as you can. Industry expert Jeff Adams recommends to invest time and money into a single property — the best of the lot.
It provides you with ample space to think through and learn about long-term benefits. Each property deal needs, and deserves, your utmost attention.
Set investment goals
Most new investors purchase properties without setting any financial goals. They have no idea about the kind of properties that will help them succeed because they haven’t set any financial goals.
Don’t purchase a property unless you have specific goals in mind. Are you looking for quick benefits or a passive income?
For example, it won’t be beneficial to buy a property in a rural area if you’re looking for sufficient capital right away.
There will always be the risk and time criteria to consider. So know what you want, and try to buy properties that will take you closer to your ultimate goal.
It’s easy to get impulsive and reckless when we make our first investment. Hold your horses! The property market isn’t going anywhere.
There’s always going to be great investment opportunities. Don’t be in a rush to pay for an investment that may fail to deliver the financial returns you expect from it.
Don’t forget the cash flow analysis
It is something that’s difficult but equally important. Just because your mortgage is $600 per week and the property rents for $650 per week, you can’t assume that your property is going to provide a positive cash flow.
As a real estate agent or investor, you must work on a thorough cash flow analysis before an investment. It will help you understand where the real estate property or land will generate the most ROI and where the investment will cost money.
An investor is most likely to use the 50 percent rule to make an approximation of the property’s rental income.
The method can be, however, deceptively high, and may not account for the expenses that are external and unique to the real estate property.
For that reason, it is vital to use cash flow analysis for investment. Using this method will provide an investor with accurate cash flow for any rental property.
Take the right steps, and make the right investment at the right time. Also, make sure you analyze the costs and expenses before investing to get positive cash flow.
Lastly, make sure to negotiate and not just regarding pricing but also with the terms and conditions of the agreement. Don’t rush. Go step-by-step. Avoid being tricked or getting played into buying the wrong property.
Michelle Joe is a freelance blogger and content writer currently associated with Airg Team in Sacramento. Follow her on Twitter.