Let’s face it, most people talk about investing in real estate as a means of making a large surplus of money and retiring early. But how many actually carry through with it? Very few, unfortunately, despite the common understand that real estate investing can be a lucrative business.
So why is it that people continue to discuss real estate investing but never seem to act on the conversation?
Getting started in real estate investing can be quite difficult for many people. Not because the industry is complicated, but generally because it can be intimidating to get started in a new venture. But, starting a rental property investment portfolio isn’t necessarily difficult at all. Here’s how to get started.
Do Your Homework
School is in when it comes to getting started in real estate! The first and foremost important step in beginning a career in rental property investing is doing your due diligence. One of the biggest mistakes people can make when getting started in this industry is to not understand the market around them. To ensure a beneficial investment, you need to comprehend the trends, prices, and average values of the surrounding area. Teach yourself the market, essentially. Check average rental prices in the neighborhood you want to buy in. Do they cover the estimated mortgage—and allow for some leeway—of the properties for sale nearby? What are local vacancy rates? How fast properties moving and what are the appreciated value of these homes?
Research the neighborhood and surrounding areas. What is the crime rate? How is the job market? What local amenities are close by? Did you verify school zone ratings?
While researching the homes and the surrounding areas is important—researching the people you will be working with is vital, as well. A good real estate agent can be a beneficial tool in your investment venture, but a bad one can lead to more delays, complications, and headaches than they’re worth. The same goes with property management teams, contractors, and any inspectors. Having these individuals or companies picked out before you make a purchase will streamline the process and prevent any unnecessary delays while you decide who to work with. Research, interview, verify, and talk to current and former clients before you agree to sign any contract with another agency or person.
Iron Out the Details
Never, ever go into real estate investing without having a fully ironed-out, detailed plan of exactly what you’re looking to get out of the venture. Once you’ve researched the market and understand the local trends, you can make an informed plan on exactly what type of investment property you are going to be looking for: single-family home, multi-family home, commercial, or just property. If you are going to be moving forward with residential rental properties, you need to have a general idea of the type of tenant you would like to be looking for in order to know what areas to begin your search. For example, if you want to rent to families, you’ll need to pick a property in an area with a good school rating and lower crime averages. If you are looking to rent to younger, single tenants, selecting an area closer to hot points—such as local bars and other nightlife—is the way to go.
Once you’ve researched and created a plan, it is time to move on to securing financing. While it can be easy to hop online and begin shopping for properties before securing financing, this can be a rather large mistake. If you don’t know how much you are able to spend, you’re likely to get caught up looking at homes outside of your price range. This can be a huge disappointment for many first-time investors as the $300,000 homes are obviously going to be more tantalizing than the $105,000 homes—and, let’s face it, once you’ve started shopping for a 300k house, you’re not going to be satisfied with taking it down a few notches.Don’t restrict yourself to just one—you never know what path will lead you to your next investment. Click To Tweet
Now Start Your Search
When it comes time to start shopping, there are many avenues you can use. Don’t restrict yourself to just one—you never know what path will lead you to your next investment. There are a multitude of websites that can help you begin your search, such as Realtor.com, Redfin.com, Zillow.com, and Trulia.com. Utilize a real estate agent to help you narrow down your choices and speed up your criteria search. As a buyer, using an agent is essentially a free service, as they are typically paid by the seller at closing. Drive around, look in your local newspaper, and check websites such as Craigslist and local Resale sites. Spread the word that you’re looking to purchase a home. Often, by telling friends and family that you’re in the market, you can snag properties from their acquaintances before they even list them with a real estate agent.
Real estate is one of the few businesses left which actually allows for negotiating. The listed price of a home is NOT the price you need to offer; however, by offering the listing price you are more likely to secure the purchase and not get outbid during the process. Be sure to only offer what you can afford—when investing in rental properties keeping a profit margin in line is vital as you don’t want to go into the red before you even land your first tenant.
When you’ve researched, created a plan, secured financing, found your investment property, and closed the deal, it’s time to jump to action. During the researching stage, you already determined who you would be using for services like property management and any remodeling or renovation work that is required. Once you close, it’s important to have these services handled quickly as the longer the property sits empty, the longer it isn’t making you money. Having a property management team in place long before closing will give you faster tenant selection and placement and you’ll be on the road to a lucrative investment in no time.
Investing in real estate can be fun, but it shouldn’t be something you jump into without serious thought, time, and plenty of research. As long as you follow these steps, secure a well-experienced team of professionals to help you along the way, and think before you act—you’re likely to wind up with a very lucrative venture under your belt.