Investing in real estate is a big decision that can either reap great rewards or lose a lot of money. We read how experienced investors are rewarded with attractive returns and would naturally like to get a piece of the pie. But, real estate investing isn’t as easy as the professionals make it out to be, so it’s important to know how to choose properties and protect yourself against your debt burden.
• Do not exceed your budget. You might be tempted to invest in a property that is sure to make money, but unless you can afford it, put it off for later. Newbies, in their eagerness, tend to spend too much on properties whose value they know little about. The only way to learn the difference between a good investment and a bad investment is to study the real estate market. How it fluctuates, factors that influence its state, etc.
• What type of property are you interested in investing in? There are residential, land, commercial and industrial properties and below them you have single family houses, apartments, restaurants, sites for factories, etc. It’s a long list and you want a property that provides income.
One point to remember is that property that makes money in one area may not make money in another. For example, single-family homes located near industrial areas may not have many takers because families do not agree with the idea of living near polluting plants.
On the other hand, if a factory provides many job opportunities to the people who live in an area, the location could see the housing market rise as people flock to find employment. What this means is that each area is different and it is important to be aware of real estate trends in those areas.
• When calculating an estimate, don’t just consider the cost of the property. There are taxes to pay that can significantly change your budget and you don’t want to find yourself unable to repay the loans.
• Even seasoned investors trust professionals like property managers to get the best value for their property. They go above and beyond by educating clients on property law, landlord and tenant rights.
You may be the owner, but that doesn’t mean you have to deal with maintenance issues. The work can be managed by the property manager.
To avoid disputes with tenants, always use the property manager as an intermediary and under no circumstances visit the property without notifying the tenant. You could be violating the terms of the lease.
• Before buying a property, check its condition, especially the roofing, flooring, plumbing, and heating system. Dilapidated property may be available at a very low price, but if you have to spend big on renovations, you’d better look elsewhere.
Evaluating a property requires professional help that can be obtained from building inspectors. Likewise, renovation work requires a thorough knowledge of construction, plumbing, and other trades that only a licensed and experienced tradesman can perform.
• Some renovation work is often necessary even in buildings that are far from dilapidated. Areas to focus on are bathrooms and kitchens, as these are the first places a buyer will check.
• Always think long term before investing in a property. Unlike stocks, you can’t sell property in parts, so the wrong investment decisions will cost you. Once you learn the basics, you should have no problem buying and renting/selling real estate for a profit.