Real estate is one of the most lucrative investments you can make, however, it’s not without risks. Although cash flow, appreciation, and deductions sound great, there’s a lot to figure out before you dip your toes into real estate investing. If you immediately dive into real estate investment, you’ll find yourself losing cash fast – you’d wish you never invested at all! So, before investing in real estate property, you need to research and learn about the real estate market, risk factors, maintenance cost, estimate rent, and others. We are going to share real estate investing tips for beginners to make your investment secure.
As a new investor, it’s worthwhile to be aware of what you need to do when it comes to buying real estate property. Fortunately, our professional property managers are here to provide real estate investing tips for beginners on how you can successfully invest in real estate for the first time. Furthermore, if real estate ever confuses you, you can always consult a real estate investment adviser.
6 Real Estate Investing Tips for Beginners to Reduce Risks
Market trends indicate that income property is a good investment but as a first-time real estate investor, it’s hard to decide where to invest, and how much to invest the first time. Here you will find real estate investing tips for beginners from industry experts to make your real estate investment safe and reduce the risk of the investment.
1. Consider your finances
Your real estate investment will be one of the biggest investments you’ll ever take on, so make sure that you can actually pay it when the time comes. Depending on the property you’re looking at, you’ll likely need to take out a loan of 25 to 30 years. In addition, you’ll need to put down around 20%, so be absolutely sure that you’re up for that.
Consider improving your credit score so that you can negotiate a loan with good terms. Ideally, you should go for a loan with low payments per month.
Aside from the upfront costs of investing (e.g. mortgage, legal costs, downpayment, etc.), don’t forget that you also need to pay for the ongoing costs. These include your repayments, repair costs, property management costs, homeowners association dues, and so on.
2. Start with a small residence
Your first investment probably won’t be as lucrative as you would’ve wanted, and that’s totally understandable. You’re still testing out the waters, so you shouldn’t invest in multiple properties at once, otherwise, you may lose all of your money at once, too. If you’re a first-time residential real estate owner, put your money into one property for now.
Consider purchasing a single-family home since it’s easier to manage compared to a multi-unit property. Run that rental for a year and try to see if the landlord’s life really is for you. If you find that it isn’t, don’t worry – you do not need to self-manage your South Florida rental home. You can retain your landlord title with the help of a single-family property management firm.
3. Calculate the estimated return on real estate investment
Math isn’t fun, but in order to tell if a real estate investment is lucrative, you need to determine the potential returns. Properties can be deceptive, making you think that they’re profitable when the reality is that their value is bound to go way down. As a rule of thumb, you should buy properties that generate rent of at least 2% of the purchase price. That should be enough to cover the costs of property management, as well as provide protection in case of unforeseen situations.
Consider working with a property management company that can conduct a comprehensive real estate market analysis. This calculates critical metrics such as the cash flow, cash on cash return, cap rate, and more. It’s the best way to determine whether or not a property is worth buying.
4. Get the location right
Seasoned real estate investors know that the location can make or break an investment. It’s common for first-time investors to purchase a property that’s close to their primary residence, however, it would be wise to buy beyond that bubble. Look at markets where you’re more likely to make more money.
When deciding where to buy, consider the following factors:
- What is the rental price of similar properties in the same area?
- Are there any developments that could impact the value of the property?
- Are there schools, grocery stores, daycare centers, etc. near the property?
- What is the crime rate?
- What is the employment rate?
As a general rule, invest in properties that are attractive to tenants. If you don’t know where to look, ask a property management company to scout potential properties for you. Furthermore, consider working with a management agent that can take care of your property so you don’t need to limit yourself to a single geographical region.
5. Avoid investments that you need to renovate
It can be tempting to buy a cheap home that’s priced below the market value (BMV) but know that it likely needs a lot of work. Unless you’re looking forward to the work, you might want to stay away from investments that you still need to renovate.
Ideally, you should purchase a rent-ready property. A rent-ready property does not need extensive repairs, for example, a house that needs only interior repainting. That’s because you should be able to rent it out as soon as possible.
Hence, it’s crucial that you conduct a property inspection to pinpoint any potential issues. A professional will evaluate the entire property to make sure that you aren’t putting your money into a risky investment. If the issues aren’t that serious, you can consider negotiating a cheaper price with the seller.
6. Always screen your tenants
Never allow a tenant that hasn’t been screened to live in your rental property. Like the location of the property, the kinds of tenants you take on have the potential to make or break your investment. If you don’t screen your tenants, you’ll end up with people that fail to pay their rent on time, refuse to abide by the rules, and so on.
It’s wise to hire a South Florida property management company with a strict tenant screening policy in place. This should include a background check of their credit score, criminal record, and more. That way, you can rest assured that your tenants won’t cause you headaches down the road.
Want to be a hands-off landlord?
Hope, our real estate investing tips for beginners will help you to invest in the right real estate property. As you can see, investing in real estate is a challenge. There’s a lot to consider, from finances to the types of tenants you’ll eventually have. That’s why seasoned real estate investors enlist the services of a property management agent. At Luxury Property Care, our property managers go through regular training to guarantee that your property is expertly managed.
You don’t need to give up your advantages as an investor. We’ll oversee your property for you while you continue to reap its benefits and rewards.