The market size of the global real estate sector was worth $3.69 trillion in 2021. Real estate experts predict that the sector will expand at a compounded annual growth rate (CAGR) of 5.2 percent from 2022 to 2030.
There has never been a better time to invest in real estate. However, real estate is a dynamic sector with many money-making avenues.
Besides, you should know the real estate investing tips. This is because when faced with numerous choices, you may have a hard time choosing the best real estate investment avenue.
Even after choosing an area of real estate to invest in, you must decide on a strategy to maximize your investment. Also, real estate is a highly competitive sector; you must be on top of your game to beat the competition.
Read this article to learn 15 advanced real estate investing tips to help you grow in your investment journey.
1. Learn How Real Estate Properties Make Money
Understanding the money-making avenues in real estate gives you a clearer picture of the opportunities you can leverage. Below are some ways you earn money through real estate:
Cash flow is the money you regularly get from rental properties on a monthly or annual basis. You can use this money to cater to your utility bills or property maintenance costs.
Governments offer real estate investors several tax incentives because they provide housing. These benefits translate to significant cost savings, thus increasing your earnings. Some tax benefits to anticipate from your real estate investment properties include:
• Tax exemptions on depreciation costs
• Real estate tax write-offs
• Pass-through deductions
• Capital gains tax deductions
• Self-employment tax
Property values increase over time. You can take advantage of this and make huge profits selling properties.
When you get a loan to finance an investment property, you pay off the loan slowly, and as you pay, the property value appreciates. Additionally, as the loan principal amount decreases, so does the interest, reducing your debt load.
Loan paydown is beneficial because it allows you to pay off your property with little hassle.
2. Have a Clear Investment Strategy
Investing is like taking a journey. You must know where you are going before you start. Thus, before putting your money on investment properties, it helps to have a plan. A good business plan should cover your investment goals, strategies, and tools to help you achieve them.
A solid business plan keeps you on track in your investment journey, even when you face setbacks. It also keeps you organized.
There are five main real estate investment strategies to consider when making a business plan:
If you are a first-time investor, these strategies will help you get your feet wet without incurring significant risk. With some, you don’t need to invest much money or time. Some easy beginner strategies include:
- Buy-Remodel-Rent-Refinance-Repeat (BRRRR)
- House hacking
- Live-in flip
- Live-in then rent
These are investments that can replace your 9-5 job. However, you must invest a significant amount of your time to make them work.
Perhaps you want to pursue full-time real estate investing? In that case, consider fixing and flipping property and wholesaling.
When fixing and flipping property, you buy run-down properties, fix them to increase their value, then sell them at a profit. Wholesaling entails finding good real estate deals and reselling properties you buy at a small markup.
Wealth Growing Strategies
If your goal in investing in real estate is to grow your wealth, consider the following strategies:
- Rental debt snowballing
- Cash rental purchases
- Buying and holding rental properties for short periods (1-5 years)
- Buying and holding rental properties for long periods
- Rental trade-ups
If you do not want to invest in real estate actively, consider becoming a private lender. Alternatively, choose passive strategies like crowdfunding and Real Estate Investing Trusts (REITs).
After choosing an investment strategy, estimate your cash outflows and inflows. Your business plan should also cover possible factors that may affect your investment over time.
3. Know Your Markets and Diversify
When beginning to invest, it helps to understand what properties are popular in your area and trends in the local real estate market. Knowing the market informs your investment decisions.
Seasoned real estate investors keep abreast of market trends and mortgage rates. They also research changes in consumer preferences and spending habits. This information helps them identify risks and creates expansion opportunities.
If you have been investing in real estate for a long time, you are likely very knowledgeable about the workings of the real estate sector. In this case, investing in one geographic area limits your growth potential.
Research the markets in other states or cities to spot opportunities to diversify your investments. By learning about real estate markets outside your local area, you expand your pool of potential investments. Thus, even when real estate is not doing well in one area, you can focus on another one.
4. Understand Your Upfront Costs and Financing Options Before Investing
Real estate is a hefty investment. So, you can’t afford to get into it blindly.
Before buying an investment property, research how much you’ll spend to finance the property. Knowing your upfront costs ensures you do not invest in an overpriced property.
When calculating upfront costs, do not just include the cost of buying a property and the realtor’s commission. Consider also how much money you need for repairs and maintenance before renting a property. Unfortunately, some investors forget to consider maintenance costs and sell a property at a loss.
Upfront costs show how much money you have to spend before profiting from your investment. After knowing your costs, research your financing options.
Some loan options for rental properties include:
• Rental loans
• Home equity loans
• Bank loans
• Fix-and-Flip loans
You may have difficulty acquiring funds via conventional loans if you want to finance multiple investment loans. In this case, try securing a rental loan from a private lender for more flexible terms.
5. Minimize Your Risks
All investments carry some amount of risk. Thus, before putting your money into an investment property, understand the risks involved. For instance, anticipate a slow uptake of rental units when investing in rental property.
For property for sale, be ready to wait to get a suitable buyer.
One way to minimize your risk in real estate investment is by maintaining a cash reserve for property management.
Your cash reserve pays for repairs and maintenance when you have a rental property. So, you can stay afloat before the property generates a good cash flow from rent payments. A cash reserve ensures you do not rush to sell your property because you can finance maintenance costs as you wait to find a top-dollar buyer.
You also minimize your risk when you avoid over-leveraging debt. When buying an investment property, pay a downpayment of at least 10 percent of the property value. The larger the downpayment of a property, the more favorable the loan repayment terms.
You risk going broke by financing all your properties using mortgages. This is because if you encounter cash flow problems, you may be unable to keep up with the mortgage payments. Therefore, if you invest in multiple properties, keep some clear and finance others.
6. Maximize the Value of Your Investment
Find ways to get more value from your investment property. For instance, you could rent a unit on your property to a business and charge them a higher rent.
Offer your tenants specialized services like garbage pickup or hiring care staff like a concierge. Then, charge higher rents.
If you invest in a rental property, be keen on cleaning, repairs, and maintenance to preserve its aesthetics. That way, even if you decide to sell your property, it fetches a high price in the market.
If you use a fix-and-flip real estate strategy, give your property updates that increase its value. As you wait to sell your property, lease it to a tenant and take time finding a buyer. Rental properties you sell with tenants are referred to as turnkey properties.
Investors who do not want to go through the hassle of finding tenants for a rental property snatch up turnkey properties quickly. Selling a turnkey property will fetch you a better profit than an empty one.
7. Do Not Overimprove Investment Properties
After buying an investment property, most novice investors waste money on unnecessary rehabilitations. Sure, you want your rental property to be in good condition before you start looking for tenants. But, you do not need to spend a lot of money fixing the property.
Set a budget for repairs and renovations and ensure you stick to it. Otherwise, you will not get much value from your investment.
A for-sale property does not need expensive fixtures to fetch a good price on the market. Go with fixes that accommodate your budget to avoid eating into your profit.
8. Pay Attention to Location When Buying Investment Property
The location of an investment property has a significant impact on its value. When buying a residential rental property, consider areas where everybody wants to move to at the time.
For instance, with the pandemic having introduced work from home, more people are moving to the suburbs. Thus, properties in suburban locations may have higher values and yield more profits for investors.
Invest in densely populated neighborhoods to increase your chances of finding tenants quickly. The best neighborhoods to invest in also have all the basic amenities.
The ideal location to invest in should have the following features:
- Proximity to public transportation
- Availability of parks and other recreational areas
- Access to medical facilities
- Low crime rates
- Good schools
- Access to retail amenities such as supermarkets
Most home seekers want to move into neighborhoods with the above features. Thus, housing demand is high in these areas. This translates into lucrative real estate investment opportunities.
9. Work With Experts
Investing in real estate involves a lot of factors, some of which you may not have adequate knowledge of. There is no point in struggling on your own when there are professionals with the knowledge you lack. If you want to be successful, leverage the skills of experts.
If you do not know the real estate market well, acquire the services of a property agent. Such a person will analyze the real estate market and give you recommendations that minimize your risks. Consult seasoned investors, or get someone to mentor you before making investment decisions.
Instead of handling financial matters yourself, hire an accountant to manage your books and tax obligations. If you have several investment properties, hire a property manager.
Working with experts saves you from making mistakes that might cost you money. It also gives you a competitive advantage in handling the essential aspects of your real estate investments.
10. Time Your Investments Wisely
If you want to make the most of your investments, you must understand how the real estate cycle works. The real estate cycle is a four-phase pattern that indicates the status of the property market.
Understanding the phases in the real estate cycle helps you know the best time to buy, hold or sell real estate properties. Hence you can make a smart investment that yields high profits.
Below are the four phases in the real estate market cycle:
The real estate cycle is circular, so recovery is not the first phase per se. Recovery occurs after a recession. At the onset of the recovery phase, real estate prices are low, and there are few new constructions.
The recovery phase is a great time to buy investment properties below market value. You can then hold the properties until real estate prices start rising.
During the expansion phase, the real estate market has wholly recovered from the recession. The economy is strong, and there is an increase in the demand for housing. This is the perfect time to sell properties you held onto during recovery.
If you develop your properties to cater to the current market trends, you can sell them at above market value.
As the demand for real estate properties rises, investors develop more properties to meet the supply. Eventually, the supply exceeds demand, and vacancies and rents start to reduce. During this time, investors rush to sell their properties for fear of making losses in the impending recession.
Take the opportunity to buy properties you believe will do well in the subsequent phases of the real estate cycle. Successful real estate investors use a buy-and-hold strategy during this phase, then wait to sell during expansion.
Alternatively, you may buy turnkey properties with enough tenants to provide you with a cash flow until the market recovers.
During a recession, the supply of real estate properties significantly exceeds the demand. High vacancy rates put some real estate investors out of business during this phase.
Properties on foreclosure sell at rock bottom prices during this period. You can find these properties, buy them, and hold them until the recession is over and the market starts to recover.
11. Invest With an LLC
If you plan on purchasing investment property using loan money, it is best to register the property in a limited liability company (LLC). Some lenders may require you to register an LLC to qualify for investment financing.
Investing in a real estate property exposes you to legal liability risk. An LLC protects you from liability, as it is considered a separate entity from the investor.
Thus, in case someone files a legal claim due to something that happens on your property, you are not liable for damages.
Investing with an LLC also comes in handy during loan refinancing. If you cannot make your mortgage payments during a recession, lenders cannot come after your personal assets when you invest with an LLC.
However, it would be best if you managed your LLC properly. Otherwise, the court may disregard the limited liability and go after your assets in case of a legal issue arising from negligence.
Note that investing with an LLC in one state does not keep you from acquiring properties in other states. Additionally, registering an LLC is a straightforward process. But, it helps to consult an attorney through the process.
12. Grow Your Network
Your network contributes significantly to your growth as a real estate investor. Thus, it is vital to find one or two real estate investing groups to join.
There are thousands of real estate investor networks across the country. Join those that have like-minded investors or offer you a chance to learn about areas that interest you. You will likely learn of many real estate investment opportunities through your network.
Do not just interact with other investors. It also helps to create a network of contractors and suppliers in the real estate industry. Always pay your dues on time to maintain a good relationship with contractors and suppliers.
When you have a network of contractors in your contacts, you can call upon them whenever you need a property fixed. This ensures your projects always remain on schedule. You might also benefit from discounts, which help you minimize upfront investment costs.
13. Learn How to Spot Good Deals
Always keep your ear to the ground to find investment properties that yield the returns you want to gain in the real estate market. One way to take advantage of good deals is by looking out for property owners who are desperate to sell.
You can buy a home fast and at a low price from a senior citizen looking to move into an assisted living facility. People relocating or couples going through divorces who want to dispose of marital property are also ideal sellers.
But, how do you get to learn about such opportunities?
Have realtors in your network whom you check with regularly for property buying and selling opportunities. You may also check properties listed on the multiple listing service (MLS).
Unless you are a real estate agent, you may have a hard time accessing the MLS. Therefore, hire a real estate agent to help you look for properties that meet your real estate investment criteria. Alternatively, you can browse real estate websites for listed investment properties.
Another way to find good real estate deals is to contact property owners and ask them if they’d like to sell to you. You can even place ads inviting people to sell you investment properties.
14. Expect to Go Over Your Budget and Timeline
Real estate renovation projects may not always go as you planned. Thus, it is good to leave some room for the unexpected.
Expect to exceed your budget when fixing properties, as your contractor may detect other issues during repairs. Therefore, always set aside some funds to take care of extra costs. Set an ideal timeline for project completion, then 30 days to allow for extra work.
Your long-term success in real estate investment depends on your ability to gain in-depth knowledge. But, it is nearly impossible to build a significant level of understanding when dealing with several markets at a time.
Therefore, when investing, choose a niche to specialize in and educate yourself on how that particular market works. Once you fully master a market, you can diversify into another market.
Apply the Above Real Estate Investing Tips
Advertisements make real estate investing seem like an easy way to make quick money. But, it requires in-depth analysis, research, and focus. We hope that the above real estate investing tips have helped you feel more ready to venture into real estate investment.
Are you ready to make your first real estate investment and are looking for a finance partner? LendSimpli is an investor-friendly platform where you can access the funds to grow your real estate investment portfolio.
Contact us today to apply for investment property loans with affordable rates and friendly terms.