The leading real estate and rental marketplace of the US, Zillow, reports that home values in the United States have increased by 7.2% since 2018.
The real state has always been the safest and most lucrative investment option that guarantees profits. However, there is a lot more to it than what meets the eye. Investment of any kind, be it in the real estate or stocks, has several risks involved. The best bet is to enlighten yourself and get acquainted with the opportunities thoroughly before getting your feet wet.
If you take tread safely and be wise in your decisions, your hard-earned money can multiply into a fortune. On the other hand, hasty decisions may cause significant losses. David Bolinger, a member of the Forbes Real Estate Council, says, “Real estate is a great investment, but you need to be sure you’re prepared for what you’re getting into.”
For first-timers, who wish to invest in real estate, there is a lot to know before deciding anything. Here is all that you must plan before buying your first property.
1. Determine your budget
First things first, you will have to determine a budget to invest in. Money doesn’t start raining as soon as you buy a piece of land. Contrarily, property investment involves a lot of unforeseen costs before it starts giving you dividends.
You have to ensure that you have enough cash flow to cover down payments, property taxes, renovation costs, etc. Other than that, you will need to bear additional expenses until the property goes on rent or is sold.
So, make sure that you factor in not only the cost of the property but also these additional costs once you become the owner.
2. Evaluate what type of real estate do you wish to invest in
According to Warren Buffet, ‘risk comes from not knowing what you are doing.’
Therefore, do thorough research on the types of real estate that you can invest in. Besides vacant land and residential properties, there are commercial real estates, which includes shopping malls, hospitals, educational buildings, and even offices.
Based on your budget and plans, you can carefully evaluate which type of real estate investment would be beneficial for you in the longer run.
3. Do your research on future interest rate projections
Keeping an eye on interest rate forecast is not only needed for investing in stocks but real estate as well. Obtaining a mortgage is a decision which you should take once you are sure of future interest rates and your income.
4. Estimate value rise
Often, first-time investors act naïve as they do not pay much attention to an estimated value rise of the property they are buying. Veteran investors, on the other hand, even calculate the expected profit they will get after the increase in the value of the property. Once you make up your mind about buying a property, you will have to track whether its value is increasing or decreasing.
5. Get help from a reliable professional
Acknowledge the fact that you are new and uninformed. Therefore, you should get help from a person who is an expert in real estate matters and will advise you the best.
A property manager or a real estate investment attorney can make the process easier for you and will make sure you do not get involved in illegalities.
In addition to providing legal services related to tax, contracts, and lease, a real estate investment attorney will ensure that your profits are escalated. He will make the process easier for you, as the risks are minimized.
6. Begin small
Investing in a smaller, low-cost property, in the beginning, is suitable for testing the waters and then further explore the potential opportunities when you’re in on the game.
An expert loan officer from First savings Mortgage, Hillary Legrain advises investors to find a property at the beginning that is easy to manage and has low operating costs.
7. Assess the neighborhood
Once you begin your search for a property to buy, you should take your time examining the neighborhood. Ask yourself whether the location will appeal to your buyers and what the surrounding area is like.
According to a survey by the National Association of Realtors (NAR), neighborhood quality is more important than home size for 78% of home buyers.
A good neighborhood is a crucial determining step if you want to get quick returns on your property
8. Get knowledge about REITs
Your options to invest in real estate are unending. When you go out in the market with money, you’ll find that there are so many properties that you can buy. However, Real Estate Investment Trusts or REIT has changed the game now. You can now partially invest in a property instead of buying it.
REIT Company holds various properties that generate income. It handles the individual investments of multiple investors within a single property. Numerous real estates can fall into the REIT model, such as lands, apartments, hotels, malls, and medical facilities. The benefit of REIT is that you don’t need to maintain or buy the whole property, yet get the right amount of profit in the longer run.
Investing in real estate for the first time can be a tough task, especially if you do not know about it. Having some professional help at hand, and comprehensive research will help you maximize your profits and lower the risks involved in it.