Investing in real estate isn’t for everyone. It takes time, money and a significant amount of learning. That shouldn’t scare people off, however, as millions of people have learned to invest in real estate with little or no starting knowledge, and done quite well. If you’re thinking about it, or have already made your first purchase, there are quite a few things to know before building that real estate empire you have dreamed of. Here are a few of the big factors for entrepreneurs to consider when becoming a real estate investor.
Understand the budget
It happens far too often that beginning real estate investors make their first purchase without fully understanding how much it is going to cost them. A mortgage payment is not the only thing you should be thinking about. There are property taxes, property insurance, mortgage insurance, home warranties, maintenance, rainy-day funds, and potentially other expenditures that you will be making.
Take property taxes as an example. If you bought a home worth 176k in Hawaii, you would be paying about $30 bucks a month in property taxes. If you instead bought that same home in New Jersey, a state known for high property taxes, you would instead be paying $300 a month in property taxes. That difference can be huge! That is a car payment for a decent car. If you are buying a home for investing purposes do your homework, know the fees, and then make an educated decision of where to make your purchases.
Learn about the area
There are a lot of factors that play into how quickly the value of a piece of property will rise. Location is one of the biggest. For example, if you’re looking into Miami real estate and are considering investing, you can expect to pay a premium for living in an established upscale community. Look at the schools, see how they are performing. Are they doing well? You can find that information relatively easy online. Check out the neighborhood. Does it seem to be improving? Would you want to live there? How much are the houses in the area selling for compared to houses elsewhere? How quickly do they sell? Is there, perhaps, a big new commercial development being built close by? All of this information can be used to give you a good idea about the wisdom of a purchase in that area.
Look at the overall market
While some specific areas may do better than others, the housing market tends to stick together for the most part. This means that if the market is on the verge of a bubble, which is where prices have climbed incredibly quickly for multiple years, it may be a good idea to hold off until things calm down a little bit. There are plenty of software and online tools that are available that will give real estate signals and help determine whether or not it is a good time to start buying.
Why are you getting into real estate
Everyone doesn’t get into real estate for the same reason. For some, it is a way to build long-term equity. These investors tend to purchase a home, and then sit on it for years and years and let it build equity. They are not as worried about the day-to-day trends in the housing market because they plan on owning for years, and the housing market always goes up in the long run. Other investors like to flip homes. They purchase a house, do some repairs to quickly increase the value in the home, and then sell it for a profit. A third type of investor purchases real estate for cash flow. They find properties that can make money instantly. For this to be the case, the total monthly payments towards the property needs to be lower than the rental income. This is only possible in certain markets. If this is you, a lot of homework will be necessary.
These aren’t the only important things to know, but they are a few. It is important to start somewhere. Do your research and network with people that have done it and you will be fine. Real estate is an exciting business and has brought great results to investors for years.
