Investing in Real Estate – A How To
If you are just getting started with real estate investing, there are some important things you should consider before taking the big leap.
Buying a property can be a daunting idea when you realise all of the things that need to be done. Looking, researching, negotiating, losing out to someone else, getting finance organised, getting legal advice, getting inspections done (building, pest, strata etc) and finally, draining your bank account to finalise the purchase!
Here we will discuss a few things to think about to help lessen the burden.
Clarify Your Goals
It’s a good idea to do some reading and research about property investing, if you haven’t already.
After getting some expert advice, either from advisors or books, you should have a good idea about what strategy you want to follow to achieve your wealth creation goals.
Common strategies in property investing include:
- Long Term Investing for Positive Cashflow
- Long Term Investing for Capital Growth
- Short Term Holding, Renovating and then “Flipping”
- Short Term Holding, Speculating on the Property Cycle
The type of property that you want to buy is also an important decision. Apartments, townhouses and units will have different returns compared to houses or even commercial property. The area that you invest in will play a critical role in how your investment performs as well.
Prepare to be Patient
With longer term investing, it can take years to start seeing gains from your investment.
Property investment is definitely not a get rich quick scheme and once you purchase that first property, you will need to let go for a while and just focus on keeping up with the costs.
Short term holding of property is a riskier exercise for the novice and it is recommended you take a long term position if you are new to
the area.
Get Your Finances in Order
You normally need a decent deposit and pattern of savings before purchasing an investment property. The exception to this is if you already have substantial equity in another investment (such as the family home or stocks).
Always aim to reduce personal debt such as credit cards and personal loans as this reduces your cash flow and is looked on negatively by
the banks. If you end up buying a property which is negative cash flow, you will need to demonstrate to the lenders that you can sustain these payments.
Dive In
Once you’ve decided on your strategy and gotten your finances in order, start researching areas that will be in high rental demand. This is one of the most important factors, because if you purchase your property but then struggle to rent it out, you will be left paying off the mortgage out of your own pocket.
This is unlikely in most metropolitan areas, but is a possibility in a regional our country town area where there is less demand. Normally, the worst case scenario is that you will end up dropping the rent in order to attract tenants. It’s not desirable but at least you’ll have
money coming in to pay the mortgage.
After doing your proper research and due diligence, make an offer on a property where the numbers stack up as a good investment. Remember that investing in property is a decision based on calculations and statistics, it should not be an emotional decision such as buying your own home.
You should avoid procrastination too much because time in the market is normally better than “timing the market”.
Good luck with your investment endeavours!
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I think all of these tips in property investment are very useful and can help everyone especially the one who has no idea when it comes to this kind of thing but still want to invest in a property. I believe getting the finances in order is the most significant thing to be done when planning on investing in a property.
minerva @ real estate park city ut recently posted..SOME INTERESTING STATISTICS
These are well thought tips. Patience is needed when buying a house. It can be a VERY long process.
Love the article, I have family that works in real-estate and I too am interested in it. Very useful information, I now know more about it and will be that much more prepared if I ever get into the business.
Joe@Pigeon Forge Cabin Heaven recently posted..Pet Friendly Pigeon Forge Cabins For Rent
Very helpful tips.. Especially the importance of buying an apartment in a locality where you know the demand will be there for renting! This is what I focus on now before I even see the place. Thanks for sharing!
I agree that rushing might be the worst mistake ever. You have to take your time!
We do a lot of construction work in and around the Louisville area, and we have been thinking about getting into renovations and investing in some properties. Thanks for the enlightening post!
The tips you have presented are trully helpful for those “newbie” in the business. Investing in a real estate field involves great amount of money and to mismanage this type of assest will eventually put the business into bankruptcy. Thanks for these very helpfull tips!
Thanks for sharing such amazing tips on investing in property! It indeed sounds time consuming and a lot of headaches, but in the end it is totally worth it.
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It is always a good idea to also check for any government regulsations concerning tenants. Here in Toronto, Canada we have landlord and tenant laws known as The Tenant Protection Act. I do not know of any laws called The Landlord Protection Act. We subsequently have problems with some well versed residential tenants who take advantage. The best advice is to very thoroughly screen and check potential tenants before they move in and make your life miserable. Having said that tenants will pay off your mortgage for you and you will have an assett that should be worth quite a tidy sum once the mortgage is paid off. Good Luck
Very helpful tips for starters in real estate investing! Thanks for sharing.
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I have lived in several states and each state has different laws relating to tennants rights. after several ugly evictions you learn to do extensive background checks. It is worth the fee, every time. One eviction can cost you thousands of lost rents.
For me to own a house is much better than to rent a house.
Having financial capacity to invest in real estate isn’t always enough. There are many essential things to consider. I believe you’ve tackled almost everything an investor should know and consider before getting into real estate investing. Thanks. Homeowners Insurance
very thorough and helpful post. You are so right about being patient, this is the hardest part for me when it comes to investing in general.
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Despite being more expensive and require long-term investment, I think buying a house better than renting.
These tips are great. A lot of issues arise when someone doesn’t do their homework beforehand. It can quickly become much less of an asset to you and more of a liability.
Investment properties are like children. They need constant work and care and having 2 is never just twice the work of having 1…
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Commercial property is another type of purchase all together. The process is similar but is much more detailed. Commercial loans are different, appraisals are different, and you need to do many more inspections. Are their EPA issues, etc. Good Luck!
Property investment is the wisest thing you can do with your money. However, you need a lot of patience and must be ready to many time consuming tasks if you want to be in this kind of business.
@SolidWorks says:I am agree with you buying a house is better then renting a house because instead of paying every month little less pay little more so after few years you will own that property.
When considering a location to purchase a rental home, check the web or your local news websites to see if they have something called a ‘crime tracker’. It gives you reports of any crimes that have been committed near the area. We often tell prospective tenants to check that site and see if they like the area before they commit to a lease. In general it’s just good to know.
I would pay the mortgage down early, without relying on the renters covering the payment. That will protect you in the event that you can’t get renters for a while (economic downturn or some other issue you can’t control) or interest rates going sky high. You will get a far better return if you reduce your interest costs than you would if you invested the money. Here’s why.Say you borrow $ 100 000 at 6%, with repayments of $ 150 a week. Over 30 years, it will cost about $ 116 000 in interest. That’s on top of the payments, so adding the principle to that means you’ve spent $ 216 000 to pay off $ 100 000. I’ll just guess (you haven’t told us how much extra you’d be adding to the mortgage) that you pay double repayments, which would take repayments to $ 300 a week. That would clear the mortgage in a little over 9 years, and only cost about $ 130 800 to do so. That’s only $ 30 800 in interest. If you instead invested that extra $ 150 a week ($ 600 a month) at 4% interest for 30 years, you’d have over $ 416 000 on paper, but about a quarter of that at least would go in tax. That investment would reap income, but it would be taxable income. So you’d probably come out with an effective return of about 3%, which would be just ahead of inflation. So you’d be left with about $ 350 000, minus the $ 116 000 you’ve paid on interest, leaves you with a return, after 30 years, of $ 234 000. Taking into account inflation, the value of this after 30 years would be much less. It would probably only be worth about half of that, or $ 117 000. However, paying the homeloan out in 9 years frees you to put the entire amount (rental income and personal contribution) into an investment. That makes it $ 1200 a month over 20 years at $ 393 962 before inflation, or just under $ 200 000 in today’s dollars. That’s not including capital gains on the investment property.I’d pay the mortgage out early, to reduce your debt burden, and then consider buying another investment property. You’d be better off in the long run.Best wishes
For most people, a home is the largest investment that they will ever make. It is important to do the preparation beforehand to help ensure that your investment will be worthwhile and something that you will not regret.
You’re right, it’s very important to research the renting trends in the area before investing in property in order to rent out.
I think all your points can be summed up by saying “educate yourself”. The more you know about the area you want to invest in the more you will likelihood of success you will have.
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I think it’s all too easy to think with your heart, but thinking with your head makes more moolah!
Buying property to invest can take a lot of restraint as the main aim is to capitalize on the investment, not build and develop a home.
Timing is also important as it can save thousands on a good day or cost thousands on a bad day!
Interesting Post- I particularly agree with the point that patience is essential when it comes to investing in property- in fact this is true of any investment- prior planning and research are also essential- thanks for sharing
I totally agree with this article, we deal on a daily basis with people wanting to buy a properties, not knowing what the procedure is or how it works can have a massive impact on everything from selling appeal to actual interest.
From an investment point of view I can not agree more with the point of patience! There are some people out there who are looking for a quick profit, this is not the case because things like the economy have a massive influence on house prices etc.
Sorry for rambling, just really appreciate articles that make sense and are useful! Awesome!
Very informative article on investing in real estate. Now is the time to dive into investing between lowest interest rates in history and homes virtually at rock bottom prices do take the plunge but as the article suggest do follow the tips that are advised.
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“…it should not be an emotional decision such as buying your own home.”
I am thinking about getting my first “flip” property for an investment. I need to stay unemotional like you suggest, but that is a hard thing to do when buying real estate. I need to concentrate on the numbers. In fact, that would make another great blog, “Investing in property is a decision based on calculations and statistics.”
Investing on property and then failing to rent it out quickly is something that many of us fear. The same goes for flipping the property. And that is why I would recommend to go hunting for a property management company that services the area or region of your property.
Wow!! These are quite interesting and very useful tips. It’s always better to make some strategies before investing in property. This helps us in making some good and profitable decisions.
The best advice I can give is to create a pro forma. I use one based on the following:
Total Cost (including closing costs)
Cost to hold (HOA, tax, utilities)
Cash flow minus expenses (rental income)
Appreciation
and then I run it out over several years, with three potential sales prices( Low, Medium and High)
If I am comfortable with the worst case scenario, then I will move forward with the purchase.
Cheer
A
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I totally agree with this article! If looking to begin in property investment you really have to be well educated in what you’re getting into, especially when having to deal with the banks. And patience is KEY!
Here is another interesting webpage with more information on how to start investing in single family homes which answered many of my preliminary questions and more.
http://arixacapital.com/about-us/faq-about-investing-in-single-family-homes/#How%20do%20yields%20differ%20from%20one%20region%20or%20neighborhood%20to%20the%20next?
I really can’t stress enough the need to educate oneself and think with your head and not your wallet. Hope the site helps!
Great advice on investing and real estate… Most people forget about the cost of improvements and reselling the property at the end of investment life. Best to calculate these two big factors in as well as the cost to perhaps stage the property for sale or rent.
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If you own property, you can release equity against this. Although there is no law that states that your property will increase in value each year, it is generally accepted that a well maintained property in a reasonable area will appreciate in value. And it is a well documented fact that on average the value of a property doubles every seven years.
In Idaho, we have soaring demand for rentals and almost no supply so its a great time to acquire properties which can cash flow from day 1.
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Investing real estate property is a great way of earning a huge profit. Renting your property is nice venture especially today that we are experiencing a bad economy. many home owners got their home foreclosed most families today prefer renting a home rather than buying one.
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Great article especially with today’s housing market where a lot of people are looking to invest in Real Estate.
really nice information interesting property is the best for income
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