Interested in the Real Estate Market? Here’s How to Get Started.
/Who hasn’t dreamed of owning a property—it’s one of the key tenets of the American dream. But what about owning multiple properties? Wouldn’t it be great to have a ring of keys for all the houses and buildings you own? Or wouldn’t it be fun to get paid rent money rather than paying it?
The real estate market isn’t off-limits to new investors—you just need to learn the basics of real estate investment. Since most properties tend to appreciate in value, there’s a lot of money to be made in the industry, from both short-term and long-term investments.
Here’s how to get started in real estate investment.
Plan Your Investment Strategy
The first thing you’ve got to do is plan your investment strategy. First, you’ll have to choose whether you’re going for a short-term or long-term investment.
A short-term investment is when you’ll turn a profit within one to two years. The only real estate investments that offer short-term profits are fix-and-flip investments. A fix-and-flip is when you buy a run-down home for a below-the-market cost. You fix up the home to increase its market value—spending as little money on contracting work as possible—and then you sell it for profit. Some fix-and-flip investors pefer purchasing turnkey properties in order to earn revenue on the property as soon as possible.
But most real estate investments only offer long-term profit potential—that’s because properties are expensive to buy, and so it takes a long time to recoup the cost. Most real estate investors buy a home and rent it out to tenants. The tenants pay rent money, which is used to pay for the mortgage on that property; once the mortgage is paid off, the investor gets to pocket the rent (a passive income is a great way to attain your financial freedom). If the property significantly increases in value, the investor could sell it and pocket the money—or move in! The best part about being a real estate investor is that you get to make those kinds of decisions.
Get Your Books Ready
Probably the least-fun part about real estate investing is the amount of bookkeeping work that you’ve got to do. All your transactions must be reported to the IRS, and you’re going to have to pay taxes on any rental income that you get from tenants. Furthermore, you’ll have to pay property taxes on every property that you own.
However, you also may be able to get tax deductions for certain things, like depreciation. It’s all pretty complicated stuff, but thankfully there are plenty of tax professionals that are experts in real estate accounting. Enlist their services if you need help.
Do Market Research
Before you buy your first property, you want to do a huge amount of market research. Find neighborhoods where property values are on the rise, and look for neighborhoods that may be soon undergoing redevelopment—you can get a property for cheap, and then it may skyrocket in value after redevelopment. You can use a simple property listings site to see what kinds of houses are going for what prices neighborhood to neighborhood.
Your main goal is to make a profit, but if you think you may want to move into the property someday, you should definitely scout out the neighborhood and make sure it’s an area in which you’d definitely want to live.
Get Financing
Financing is the most difficult part about real estate investment—that’s why not everyone’s doing it, and it’s also why most people struggle to even buy their first home. Obviously, you’re probably going to need to invest a little bit of your own money to make a down payment on a mortgage. But you should learn about other kinds of financing avenues. An FHA loan only requires a minimal down payment, although your mortgage payments will be higher. You may also be able to get a USDA loan if you’re buying property in a rural area.
Fix-and-flips can be hard to finance because many banking institutions won’t finance a short-term loan. Most fix-and-flip investors opt for hard money loans.
Pro Tip: Remember that home costs more than its sales price. There are lots of hidden costs that you should account for. Have money ready for all these unexpected expenses.
Consider a Property Manager
When you’re renting out a property to tenants, you officially become a landlord. Being a landlord is time-consuming because you’re responsible for handling all your tenant’s maintenance requests, and you also have to find tenants to rent to. All of those tasks may distract you from your day job and from working on other real estate investments.
Consider hiring a property manager. A property manager can basically act as a landlord for you—they can find tenants and handle tenant concerns. A property manager will cost a monthly stipend, but if you’re too busy to be a landlord than the cost may be well worth it.
That wasn’t too hard, was it? Now that you’ve learned the basics, start preparing a property investment strategy and get your real estate investment career started.
