A 101-Level Crash Course in Real Estate Investing
If there’s one thing investors have learned recently, a booming stock market will eventually crash. Along those same lines, real estate investors also see wobbles in their portfolio values. The difference is that real estate entrepreneurs are still making money on their investments, a huge economic advantage if you’re relying on investment income in retirement or just for extra cash. How are they still seeing an income stream when their properties may have lost value? The answer is simple—rental income. Also, real estate investing comes with real tax advantages that allow many property owners to reduce their tax bills dramatically.
If the only thing holding you back from investing in real estate is not knowing where to begin, here’s all you need to know about the nuts and bolts of getting started.
Assess Your Finances
The first thing you do is a full evaluation of your finances to determine if you’re financially ready for real estate investing. Pay off all your debts and stash that cash in a nest egg for a down payment on your first property. Figure out a budget—what you can afford to spend, how much you’ll need to get the property ready to rent or sell, and an estimate of carrying costs while you wait for that first check to clear. If you’re looking for rental property, will you manage it yourself or hire a management company?
What’s the bottom line? There is no financial consideration too small when you’re deciding to invest.
Find a lender
If you’re financing your investment, meet with a mortgage lender to discuss your loan options. When you’re ready to start house hunting, get pre-approved for a loan. Even in a buyer’s market, a seller wants to ensure you can complete the transaction.
How Do You Want to Invest?
While there are several ways to invest in real estate, only two give you control of your investments— buying to develop a rental portfolio or buying to flip. Rentals offer the greatest profit opportunities but take a lot more hands-on work.
When you go the rental route, you’re getting a twofer—an almost-immediate income stream and an appreciating asset over time. The traditional way to get into rentals was with tenants who signed year-long leases and hopefully renewed, but the short-term rental market is booming, thanks to the popularity of websites like Airbnb.
As we mentioned earlier, one of your first decisions is whether to manage the property yourself—a 24/7 job, to be honest—or hire a property manager. Sure, the property manager will charge a fee, but they’re on the other end of things like midnight plumbing repairs.
Flipping houses—buying fixer-uppers and rehabbing them to sell—is the other way that you can invest in real estate and maintain control. The foundation for choosing properties is similar to if you’re looking to rent your investment, but there are a couple of twists to a flipping strategy.
Buying houses that need anything from a cosmetic upgrade to a complete gut takes deeper pockets than buying to rent and hold. Even the most comprehensive inspections can miss severe problems once you get into flipping, and you’ve got to be able to finance unexpected repairs—things like foundations, outdated wiring, and on-its-last-legs HVAC systems are the bigger expenses. Still, enough small things also add up to real money.
You don’t need a contractor’s license to succeed with house flips. Still, a solid understanding of basic building and the mechanics of construction—as well as the ability to manage minor projects on your own—are important as you get started in the rehabbing business. It’s pretty simple. The more work you can do yourself, the greater your profit margin. If your idea of a DIY project is changing a lightbulb, stick with the rental properties.
Finding the Right Property
There’s more to determining if a property is a good buy than an attractive purchase price. These tips will help you make the right decision before you make an offer.
Do your research on the area. Fair Housing laws and basic common sense prevent real estate agents from being brutally honest about listings. The only way to know if that great deal is in the flight path of a new runway or around the corner from a high-crime area is to learn for yourself. Ask yourself this: is this an area you’d want to live in?
Starting small is the best way to finish large. No matter how much you educate yourself at the outset, the learning curve for real estate investing is steep, and it’s best to make early mistakes when they’re relatively easy to remedy. If you’re going the flipping route, this is doubly true. Don’t start with a major project.
Hire a professional inspector to examine the property from top to bottom and advise you of all repairs and the estimated costs.
Remember what they say about something that seems too good to be true—it probably is.
Developing a Great Investment Portfolio
Offercity can shorten your learning curve for being a real estate investing pro. We source properties all over the area and manage the due diligence process for you. We’ll take care of the inspection, provide a detailed market analysis, and even send you a 3D video of the property, so you can see for yourself what it’s like. If you’re ready to jump-start building your wealth through real estate investing, contact us.