Historically, real estate investing is a successful strategy for investors. However, as with any investment, there are risks. Real estate investing requires considerable preparation and research.
Here are some essential steps to improving your chances of success when beginning to invest in real estate.
Do the Research
Before buying an investment property, perform due diligence to determine if the prospective property is everything the seller claims. As with any real estate investment, a professional real estate agent with extensive knowledge of the area and experience can assess the property’s viability.
Run the Numbers
Before purchasing an investment property, understand all the costs. Create a list of all the expenses involved. In addition to the financing, include taxes, maintenance, utilities, advertising, and other operating expenses.
Annual rental income should exceed the total of these costs while also being at a rate to attract and retain renters.
Set a Target Return on Investment
Real estate investing is generally only one component of an investment portfolio. According to a recent Forbes article, real estate investors typically target a return on investment (ROI) of 15%. An experienced real estate professional is a valuable resource for understanding the local rental market conditions.
Assemble a Team
In addition to relying on the advice of a trusted real estate agent, a successful investor should develop a trustworthy team of advisors and contractors to help improve, repair, and maintain the property profitably. An investor needs an expert to understand the cost of upgrades and the long-term impact on the property’s value.
Additional experts on your team should include a lawyer, title agent, and accountant experienced with the nuances of real estate investing.
Start Small and Stay Close to Home, Then Expand Your Business
Experts suggest new investors start small and learn the real estate investing business.
New investors should buy local properties they can easily monitor to learn the ins and outs of property management. Managing investment property from a distance can create problems, especially for new investors.
Choose a Lender Wisely
The cost of financing an investment property is a significant factor. Interest rates and extra charges can hurt your cash flow and discourage further investments.
Successful real estate investors typically establish an ongoing relationship with a trusted lender. Some investors initially look for non-institutional sources to help purchase their first investment property, such as securing funding from friends or taking out a hard money loan.
Work with a Proven Real Estate Agent
Any real estate investor’s most important resource is a real estate agent with extensive experience and local market knowledge.
Before beginning any real estate venture, investors should consult a proven real estate professional to understand market conditions.