7 Tips Every First-Time Real Estate Investor Should Know
You’ve probably heard by now that real estate is one of the smartest, safest investments you can possibly make. While it’s certainly true that investing in real estate can yield extremely favorable returns, there’s a bit more work involved than meets the eye.
Many people fall prey to the common misconception that investing in real estate is as simple as purchasing a property to rent out or flip; the reality is that investment properties require a great deal of maintenance and care, regardless of how you intend to earn a return. And though of course there’s plenty of potential to earn a comfortable income from your investment property, you must make sure you fully understand what to expect before you make any major decisions.
Top 7 can’t-miss tips for buying your first investment property:
1. Decide whether you’d like to “flip” the property or rent it out
As far as earning a return on your investment, you can choose to either flip the property by selling it for more than you paid, or you can become a landlord instead and collect monthly rent.
If you decide to flip your investment property, take time to carefully put together a budget for renovations and other upgrades. Focus on projects that will make the property more attractive to the types of buyers interested in your neighborhood. Stick to a neutral color palette and avoid costly or exotic materials if you aren’t targeting luxury homebuyers.
On the other hand, if you’d prefer to rent out your property, make sure you fully understand your responsibilities as a landlord or landlady. Despite what many first-time investors may believe, owning a rental property requires more work than simply collecting a check. Depending on where your rental property is located, you may be required to perform specific routine maintenance tasks on the building, in addition to making sure the property is safe and up to current codes.
2. Contemplate hiring a property manager
If you plan to rent out your investment property, it may be worthwhile to work with a property manager. After you’ve thoroughly researched the role and responsibility of a landlord, there’s no harm in looking into local property management services.
Make sure you inquire about the specific services that the property manager does and does not handle; while some companies may offer you a completely hands-off approach to running your rental unit, others may specialize in only certain tasks.
Find out how much property management services cost and consider the resulting ROI.
3. Leave plenty of room in your budget for renovations and unplanned projects
Whether you intend to flip a house or rent out a building, you can never be too careful when it comes to budgeting. Make sure you have plenty of available funds even after you purchase your investment property.
If you’re buying a home that was previously foreclosed, you could be responsible for paying owed back taxes or updating previous that isn’t compliant with today’s building codes.
Additionally, you’ll want to consider remodeling projects, cosmetic upgrades, and perhaps even purchasing updated appliances in order to make the property more attractive to buyers or tenants.
4. Understand the difference between financing an investment property vs. an owner-occupied home
You may be surprised to learn that buying an investment property can differ from buying a home for your own family to live in. Typically, buying an investment property will require you to put down a larger percentage of the total price than would be necessary if you were buying a home to live in yourself.
If you aren’t planning to buy your property in an all-cash transaction, be sure to research appropriate financing options to find out what makes the most sense for your own unique situation.
5. Always consider your ROI as you’re viewing potential investment properties
As you’re looking for an investment property, it can be easy to succumb to tunnel vision and focus too much on finding properties within your budget; remember to always keep in mind how much you can expect to earn back on your investment!
If you’re buying a house to flip, research the local market to see what similar houses have recently sold for. Pay attention to factors that buyers will research, like local school ratings, current taxes, and crime rates. You may even benefit from speaking with a real estate agent to gain more insight on the local housing market and how your ROI could be impacted.
Alternatively, if you’re buying a property you’d like to rent out, research similar rental units in the area to understand roughly how much you can expect to earn from your investment over time.
6. Don’t purchase a property you can’t get to easily
Don’t burden yourself with the added stress of having to suffer a long commute every time you need to visit your investment property.
Even if you’re buying a house to flip and don’t intend to hold on to the property long-term, try to make your job easier as a first-time investor by buying a property that’s convenient to access.
Home repair projects don’t always go as planned, and even a seemingly simple task could require multiple visits to the property; avoid wasting time and money traveling and invest in a property that’s close to your own home.
7. Speak with other real estate investors and learn from their experience
Of course, the best way to prepare for buying your first investment property is to speak with somebody who’s already been through the process.
If you don’t personally know any experienced real estate investors, you can probably find local seminars on the subject in your area. Additionally, you can search online for real estate investor networking groups and forums, as these are excellent resources for asking questions and seeking advice.
Are you ready to buy your first investment property?
At CastleRock, we help dozens of real estate investors purchase low-cost properties every year. Browse our nationwide inventory of affordable, previously foreclosed homes today to see if we have an available property near you!
Feel free to contact our team of friendly experts for any questions you may have, and don’t forget to subscribe to our blog for more helpful tips about investing in real estate!