Investing in real estate is an important decision that can make you big rewards or lose big money. We read how experienced investors are rewarded with good returns and would naturally like to get a piece of the pie. But, real estate investing isn’t as easy as the professionals make it out to be, so it’s important to know how to choose properties and protect yourself against the burden of debt.
• Don’t exceed your budget. You may be tempted to invest in a property that is sure to make money, but unless you can afford it, put it off for later. Newbies, in their haste, tend to overspend on properties they know little about. The only way to learn the difference between a good and a bad investment is to study the real estate market. How it fluctuates, factors that influence its state, etc.
• What type of property are you interested in investing? There are residential, land, commercial, and industrial properties and under them you have single family homes, apartments, restaurants, factory sites, etc. It’s a long list and you want a property that provides income.
One point to remember is that property that makes money in one area may not make money in another. For example, single-family homes located near industrial areas may not have many takers because families do not agree with the idea of living near polluting plants.
On the other hand, if a factory provides a lot of job opportunities for people who live in an area, the place could see an increase in the housing market as people flock to look for jobs. What this means is that each area is different and it is important to know the real estate trends in those areas.
• When calculating a budget, don’t just consider the cost of the property. There are taxes to pay that can significantly change your budget, and you don’t want to find yourself unable to repay loans.
• Even seasoned investors trust professionals like property managers to get the best value for their property. They go above and beyond to educate clients on property law, landlord and tenant rights.
You may be the owner, but that doesn’t mean you have to deal with maintenance issues. The work can be managed by the property manager.
To avoid conflicts with tenants, always use the property manager as an intermediary and, under no circumstances, visit the property without notifying the tenant. You could be violating the terms of the lease.
• Before you buy a property, check its condition, especially the roofing, flooring, plumbing and heating system. Dilapidated property may be available at a very low price, but if you have to spend a lot on renovation, you’d better look elsewhere.
Evaluating a property requires professional help that can be obtained from building inspectors. Likewise, renovation work requires thorough knowledge of construction, plumbing, and other trades that only a licensed and experienced tradesman can perform.
• Some renovation work is often required even in buildings that are far from dilapidated. Areas to focus on are bathrooms and kitchens, as these are the first places a buyer will check.
• Always think about the long term before investing in a property. Unlike stocks, you can’t sell the property in parts, so the wrong investment decisions will cost you. Once you learn the basics, you should have no problem buying and renting/selling real estate for a profit.