Real Estate Investment Calculators
Tips for Getting into Real Estate Investing
Resources for professional real estate investors:
- Commercial Loans
- Residential Income Analysis
- Portfolio Rate of Return
- 1031 Exchange
- 1031 Exchange Deadline
- Taxable Vs. Tax-deferred
Where to Start
Getting into real estate investing is basically about buying property for the sole purpose of profiting from it later. It is a great way to make extra money. It can also become an abundant source of income and yield you nice tax incentives.
Generally, when people decide to purchase a home, they are considered to be making an investment. This is typically because most people nowadays do not buy property to live in it forever. People move around after a while. When one decides to sell their home after building equity, it is desirable for the homeowner to make a profit by selling it at a much higher value than it was originally purchased.
Aside from making a profit from selling your home, investing in other properties is a serious business for those who are ready to commit to the exciting challenge. Though investing in real estate can be lucrative, it should not be pursued as a way to get rich quick. It requires time (even years), problem solving and diligence.
To become successful at real estate investing, start off with learning the basics, and know what steps you need to take along the way. Then familiarize yourself with the things you should avoid to prevent money loss or any other setbacks. This article will provide some helpful tips to get you stated.
Steps to Take as a New Investor
So, you want to start investing in real estate? Here are some important steps to take as you begin to transform yourself into an investor.
The first and most important step when pursing real estate investing for the first time is to get educated. Take classes in real estate investing. Get books, and research the different topics that you are unsure about. Become very acquainted with ethics and the laws in your state or the state in which you are planning to invest property. To go a step further, find a trusted mentor or a real estate coach to help guide you through your first investment endeavor.
Other Important Things to Know:
- Learn when are the best times to buy or sell.
- Learn negotiation techniques.
- Learn the real estate terms and jargon.
- Learn about different insurance options.
Start Building Equity
The longer you stay in a home, the more equity you can acquire (the actual value that you get to pocket after you pay off the bank). Unless you can afford to purchase property in one lump sum, it's a good practice to pay a little bit more than what is required for your monthly mortgage. This will decrease the amount you have to pay in interest, and speed up the time when you finally complete your mortgage payments.
Those who reside in a home for a while and build equity can make a decent return when they decide to put the property up for sale.
Develop a Plan
Have an idea of what kind of property (residential or commercial) you are interested in purchasing for investment purposes. In addition, know how you plan to make your profit.
Go after one investment project at a time. Investing in property may seem simple and exciting, but you do not want to just dive in without testing the waters first. You want to make sure that you don't take on more than you can handle at one time. Get a feel for investing, and see if it is right for you. After your first success, you can go on to pursue the next.
Investing in single family homes, apartment or condo units would most likely be easier to invest in than larger complexes. Once an investor becomes more advanced, investing on grander scale becomes more ideal. In addition, business or commercial properties can yield a desirable profit as well.
There are different ways to invest in property. After you buy a house or other type of real estate, you can make a profit by doing the following things:
- Use/live in the property for some time, build equity and make a profit in later years to come.
- Share and significantly reduce your mortgage payments by renting out a space within your residence or office building. For example, one may choose to rent out a basement apartment, back house or other space.
- Purchase property solely to rent out to tenants.
- Purchase property and provide a Lease-to-Own option. Here, a percentage of the monthly payments go towards the purchase price once an individual decides to take over the mortgage.
- Resell a property to another investor for a higher profit.
Another huge part of developing your plan has to be figuring out your budget. You should know just how much money you are investing. This amount is not only referring to the money used to purchase the property. Other expenses can include money spent on renovation projects or hired professionals such as a home inspector and etc.
Have a set amount that you want to spend, and keep track of your budget. Basically, be conscious of how much you have spent, how much you are bringing in and how much you plan on saving for each month.
Rehabbing Properties: Renovations and Updates to Increase Your Profit
Rehabbing should be a part of your plan if you want to make the most of your investment. A great way to increase the property value before you choose to sell, lease, or rent it out is by doing renovations and upgrades.
When choosing to make changes to a property, consider the amount that has to go in to completing each project. Depending on the work that needs to be done, you may have to hire outside professionals.
You don't want to lose money by flipping a house that doesn't bring in a favorable return. It's better to purchase property under value if you already know you want to do some renovations. However, be aware that you may be responsible for income taxes for the money you make from doing the rehabs.
Here are examples of projects that attract buyers, stable tenants and raise the property value.
- Replacing Windows and Doors
- Updating the Kitchen (new cabinets, counter tops and appliances)
- Modernizing the Bathrooms
- Redoing the Floors (carpet, tile or hardwood floors)
- Finishing Basements
- Developing the Yard and Creating Curb Appeal
Know How Much Money You Need to Start
You definitely need to save up enough money to cover your purchase price. Yet knowing how much you need to get started really depends on a few other factors. It obviously depends on your particular budget and plan. However, the amount may change for the different region/community you are planning to invest in, the property taxes and the current property value.
Keep in mind that when buying property, you want to put down more than 10% to obtain lower fees and interest rates. Since recent changes in the market, a lot of places actually expect around 20% down instead.
If you are renting out a property, then you should also account for partial utility payments, maintenance fees, the mortgage payment and taxes on rent. In addition, remember to consideration the cost you will need for any renovations or outside assistance.
Common Pitfalls For New Investors (and How to Avoid Them)
Failing to Stick to a Plan and a Budget
Many investors have a setback by not sticking to their plans and fixed budget. Know the amount of money you want to spend on each property. Don't pay too much for a property and end up not making the return that you were expecting. Use negotiation techniques if you need to. Just stick to your budget. Don't make decisions on an impulse, and keep a record of all your spending.
Staying organized will help ensure that money does not get mismanaged.
Also, be wise when selecting the rent price or resell value of your properties.
Trying to Do it All by Themselves
It's okay to have help. Gather a team for support and establish a network of professionals within the business. Share tips, clients and resources. Close on a deal much faster and smoother with a trusted team.
Here's a list of professionals you may want to have in your network.
- Property Manager
- Real Estate Agent
- Tax Advisor or Lawyer
- Loan Officer
In addition, consider joining associations just for real estate investors.
Not Properly Educating Themselves
Taking the time to read over materials, take classes and learn from others is a great investment of your time. Staying knowledgeable and ahead of the game will give you an advantage that you don't want to miss out on.
Choose the Wrong Property
Unfortunately, investors sometimes lose money when they unknowingly invest in the wrong property. However, there are ways to avoid this mishap.
It is important to know what the property is really worth before you buy it. If you choose to flip a property, make sure it is worth it. Inquire about why a particular place is up for sale. It's also a good idea to hire a home inspector. There may be issues within the house that may not have been brought to your attention. For instance, there may be plumbing, insulation or electrical problems.
Another way of preventing this pitfall is by carefully selecting the right location. Consider looking for newer developments. Choose a location that will be within a fair distance so that you can get to it when needed. For instance, a property 2 ½ hours away may be too far to manage. Also, certain locations are harder to land a sale.
Investing in real estate is an excellent way to bring in extra money and can even turn into a lucrative career. It takes a skill and diligence. Following the tips above will help to get you on your way.
Trustworthy Sites and Resources Offering Advice
- John T Reed
- John T Reed's guru ratings
- Real Estate Investing for Dummies, 2nd Edition, by Eric Tyson, Robert S. Griswold