If you love working on properties and managing everything house-related, you’ve likely considered investing in real estate before but aren’t quite sure how to start. Real estate investments are highly profitable, but they also require careful research, planning, and quite a bit of hard work.
When you choose to become a landlord, whether of residential or commercial property, you need to protect your investment by keeping it in good repair and establishing good relationships with your customers – your tenants. You’ll also need to be able to choose your investment wisely, get a great mortgage rate, and rectify any issues that may grow worse if not uncovered in time.
Today, we’ll discuss the most essential components of investing in property that must take place before you can pick up the keys and begin your work pursuing tenants.
Decide What Type of Property You’d Like to Purchase
Real estate investment is a vast field, and there are numerous property types you can consider purchasing, so it’s important to think about your comfort levels regarding risk, scale, and longevity.
All real estate is tied to market fluctuations, but some are more volatile than others, such as commercial real estate: this has been proven by the recent difficulties in protecting one’s investments as the remote work trend continues to pick up steam. Residential real estate is more stable – everyone needs a home, after all – but it, too, is tied strongly to property values, demographics, and overall socioeconomic trends.
You need to think carefully about how much you can afford to lose, how many units or properties you want to manage, and how long you intend to stay with your investment, whether that is keeping tenants for decades or flipping homes.
Learn How to Identify a Good Investment
All investments are not made equal, so you have to develop a keen eye for what will pay off and what will simply cost you more money.
Think about the general trends in the market you’re purchasing in, such as its economic development, the number of large-scale investments – both private and governmental – that have been poured into the region, and the employment metrics, which will determine whether you’ll be able to maintain a steady tenancy.
Next, you’ll take a look at the property itself: its condition, location, tenant history, and attractiveness to potential renters. A slightly run-down building that is in a high-traffic area may be worth the time and money poured into making it more presentable, but an immaculate property in a run-down area that has experienced serious economic shocks might not be so profitable, even if the building itself is perfect.
Investment property mortgage rates are generally higher than those for residential properties because there is more risk to the lender. Those who own their homes tend not to have many other options but to work it out with their lender and try to pay their mortgage, but investors might simply allow a foreclosure and instead move on to their next investment because they are running a business, not finding a place to live for themselves.
As such, you need to understand what types of mortgage programs are available, what constitutes a good rate, and how to select one that best meets your needs. Visio Lending has a highly informative article explaining your options, and it also provides an overview of current mortgage rates so that you have a better idea of what to expect when you apply.
Get a Home Inspection to Uncover Hidden Issues
As with buying an owner-occupied property, you must be aware of your investment’s overall condition, as this will help you decide whether the return on investment is worth the cost of repairing any problems it may have. Some hidden problems are highly expensive, such as faulty wiring, water damage, or a cracked foundation, but they may not be immediately visible when you first tour the property.
Before you sign anything, hire a home inspector to examine the property, looking for radon leaks, pest infestations, and roof damage, so that you can develop a plan for how to fix these before you rent out or resell the property. You can also use this in negotiation with the seller, just as you would if you are purchasing your own home; however, you can’t ask for these concessions if you don’t know about them, so be prepared beforehand.
Your Work as an Investor Doesn’t End With the Sale
These are the components involved in purchasing a property, but know that they are only the beginning of a long journey as a real estate investor, and that you’ll need to invest time and money even after you have picked up the keys.
It’s an incredibly worthy pursuit and one that can pay big dividends; however, it also necessitates great attention to detail and commitment to ensuring a good experience for your tenants so that they will help you continue to earn profit from your property. Research carefully, develop an eye for a good opportunity, and rely on experienced professionals to guide your search.