As an aspiring investor, real estate may seem to be an overwhelming and daunting industry to start with. It is always easy to make mistakes when you’re new to the business that’s why proper guidance is needed when starting out. Strategy Properties is here to break down the basics on how to start as a new investor.
Decide on your strategy
Real estate in itself is a broad topic. You can find dozens of investment strategies, niches, and ideas to make money in the industry. The first step is to understand the current condition of the market since it can sometimes be ever-changing and unpredictable. Blindly rushing in without careful planning in the fast-paced real estate environment can seal your fate as a successful investor.
Like what we mentioned, there are a couple of strategies out there that you can keep in your arsenal. Most beginners use the buy-and-hold approach where you basically purchase a rental property with the intention of holding on to it for a period of time and you receive monthly income from your tenant.
Turnkey investment is another one that you can add to your skillset. This involves the property being fully renovated so an investor can immediately purchase or rent it out. Another strategy could be flipping wherein an investor purchases a home and attempts to resell it at a much higher price for profit. Investors who are new to the field tend to move toward rental strategies. It is easier to manage, plan, and has a lower risk compared to the others. All of these strategies have their pros and cons that’s why it’s always important to weigh your options before diving in.
How much money do you need? It depends on the type of property you’re going to start with, the down payment, and its maintenance. Try to determine the cost of homes sold in your area from least to most expensive and get the median price. This will serve as your basis when purchasing investment properties. Anything higher than 25% over the median price might mean your mortgage payments will skyrocket which will result in weak cash flow.
Start saving up on potential down payments since lenders normally want to see at least six months of mortgage payments in your financial history. Make sure that you’re free of any debt since this is a financial commitment itself. Planning ahead by having the 20% down payment ready on hand is a good strategy when investing on a property.
A rookie mistake that tops the list is underestimating repairs and maintenance costs of the property. The initial work needed to get the house rentable and the annual maintenance costs are key factors in estimating how much money you need for your property after purchasing it. Having a clear idea of how the repairs would affect you financially will help you save a lot before starting any renovation in the first place.
Find the right property
This goes hand-in-hand with knowing your strategy. Beginners always have the misconception that they need to start big from the get-go. Rushing isn’t a good thing especially when it comes to the real estate business. Learn to start things slow and don’t get caught up with its exciting and fast-paced environment to avoid shallow-planned purchases.
The location and seasonality of the property also comes into play when finding the right home. A property located in a safe neighborhood is most likely to be chosen rather than one that’s in a crime-infested area. If you’re planning on starting with a rental property, consider ones that are located near schools, commercial districts, or something close to the public transportation lines. People prefer homes with quick access to these amenities and having one nearby would greatly benefit you.
A veteran investor will tell you that there are properties that will perform better in certain seasons. For example, vacation rentals are trendy during the summer and prospective tenants flock during this season to look for the perfect place to stay at.
Keep an open mind
Don’t blame yourself if you haven’t reached your expectations in this industry – it’s normal since you’re just starting. Always have a game plan to follow clearly and think ahead. Be open to new ideas and do as much research as you can before you begin investing. Talk with experienced investors to help you get started in the business. The best place to start is with Strategy Properties. Our knowledge of the real estate industry has helped both new and seasoned investors succeed and we want to share that same knowledge with you as well. Contact us via phone at (734)224-5454 or email: info@strategyproperties to get your money growing now!