Right now, the growing real estate market is tempting many people to consider whether it’s time to invest in real estate while interest rates remain low. If you are diving into the real estate market, here are a few things you need to know:
1. Investing is a numbers game. Buying property as a home is an emotional experience. The opposite is true of investing, which is about only a few key metrics: what you can buy the home for, what it will cost to rehab it, and what you will sell or rent it for.
2. Settle on your strategy. Decide early whether you want to fix and flip homes, be a buy-and-hold investor, or a combination of both. Determining the parameters for your portfolio makes the selection of property much simpler. Once you know what you want, you can act accordingly. In general, the longer you hold a home, the more value you will extract from it.
3. Learn your marketplace. I cannot stress enough how important it is to sit down with your Realtor and understand your target marketplace. Know what the historical market has been. Drive the streets that interest you, and look at properties, but also take note of businesses that surround the area. Is the market at its peak, or on the upswing. Is investing happening? What factors are impacting values now?
4. Start slowly and don’t get overextended. People run into trouble when they invest too much in the beginning, thinking they can recoup quickly. Every investment has the potential to go awry, hence the term risk. Start small and don’t invest money from your current savings plans or retirement accounts. Real estate investing should be a supplement to your existing plans, not a replacement. Later, if you have great success, you can always reevaluate.
5. Find your trusted contractors. Your Realtor can be a great resource for quick, reliable contractor recommendations. An agent who works consistently with investors sees the best, and the worst, of who is working in your area, and can help you pair up with the right person to fit your portfolio goals.
6. Build your team. If you are planning just a single investment, you probably only need a Realtor, lender, accountant and lawyer. Depending on your situation, you may want to set up a legal entity such as an LLC to minimize your tax liabilities or to protect your assets. Later, you will want to add a title representative, an escrow officer, and perhaps outside investors. But remember #3 above: Start Slowly!
7. Select your properties with care. Choose properties that are low maintenance and have a wide appeal. Finding an investment property isn’t about your personal taste. Avoid properties with odd room layouts or with high-maintenance features such as a swimming pool or a large garden. While those features may have emotional appeal, they won’t add profit to your bottom line. The only caveat: pools and large lots are must-haves for the high end fix and flip.
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