“Which properties should I buy?” “Where to buy investment property?” “How do I know a good property?” are most likely some of the questions you’ve been asking yourself or others as a first time real estate investor.
Asking the right questions and getting the answers is a clear roadmap to investment success. The pointers below will guide you in making your best investment decisions as a newbie.
Ensure your finances are in order
Real estate is a capital intensive project. You want to ensure you can be financially stable for a long time after investing so don’t invest in a boat or other luxuries. This might mean having a plan for the eventuality that your property doesn’t get rented immediately.
It also means having an alternate source of income to pay the mortgage should the rent come in late or not at all.
Build relationships with seasoned investors
You can’t go the whole mile alone in the real estate business. Building a good working relationship with savvy investors helps you benefit from their wealth of experience. Getting yourself a willing and experienced mentor to put you through is an invaluable resource.
You could as well get into a partnership with a willing real estate agent if you’re unable to get a mentor. Also, there exists tons of experienced investors on Bigger Pockets investing forums. You can be sure to get helpful and insightful advice from them.
Familiarize yourself with your target market
Before purchasing any property, you should know, to a large extent, your target market. You should know about things such as the schools, the type of businesses and very importantly the crime rate in your target market.
Start considerably small
It’s okay to want to go big. We just don’t advise it for a first time real estate investor. You’re just testing the waters, so we recommend you start by investing a smaller amount than you can afford. You use that as a learning experience and if the investment goes south, you can still have a huge chunk of your capital to fall back on.
Learn the mathematics and terminologies
You need to need basic terms peculiar to real estate such as, cash on cash returns, net yield and others. Learning the mathematics involved in real estate will tell you whether you’re about to make a killing with the property you’re buying.
Use your maths
As an addendum to the point above, when purchasing a property, you will have to make decisions based on your calculations of concepts such as cash flow, cap rate and rehabilitation cost if it is going to be a flipped property. Carefully analysing all this could arguably be your most important step in selecting a property
Use the market cycle theory to your advantage
Buying properties in the early recovery stages as well as during a recession can earn you huge profits in addition to the income from rent. You should try to understand what will happen to the property you’re aiming to buy in a couple of years and invest during the right phase of the cycle.
Venturing into real estate as a newbie can be nerve-racking. And making success of the enterprise involves hard and smart work. However, using the tips listed above can serve as a blueprint to great returns.