Do you want to get into property investment?
With the investment property market in the US worth over $10.5 trillion, it’s easy to see why you’d want a slice of that pie. But when you’re starting it can be a daunting process. It’s hard to even know where to start.
That’s where we come in. Keep reading for these 21 real estate investing tips to get started today.
1. Don’t Take on More Debt Than You Can Afford
You can be a successful real estate investor and still go broke if you mortgage each property to the hilt. It’s better to keep some financed and some freed up as this will provide more financial safety. You’re not stretching yourself.
2. Do Research Before Trusting Paid Advisors
In a lot of cases, your financial advisor might tell you to avoid property altogether. They’ll state it’s illiquid and it’s too management-reliant. While they might be valid based on your situation, this isn’t the real reason to avoid property investment.
The real reason is stockbrokers don’t get paid if you invest in property. They aren’t getting a commission, there is nothing for them to do…there is nothing in it for them. You need to do your homework and work out if this is a worthwhile investment move yourself.
3. Have a Budget & Timeline…
…but expect (and plan) to go over both. When it comes to how to invest, a good rule of thumb is to put aside 50% extra of your budget in reserve. Especially if you’re a new investor.
It’s easy to go over budget, especially if you have some repairs on your hands before you can rent it out. One issue can lead to more, and it can spiral from there.
For example, you might think you have a little pipe leak to fix. When you open it up you find the whole place needs replacing, and there’s mold. In the end, you have to replace the drywall and treat the mold too.
As for a timeline, the same rule applies. If you’re expecting to have a property done in 60 days, plan for that to be 90 in reality. As the expenses come in, the timeline extends too as more things need fixing.
4. Your Investment Properties Are a Business
Make sure you’re treating your investments like a business. This means making purposeful decisions in the management, planning, and execution of investment strategies.
If you don’t treat this as a serious business, you’re setting yourself up for failure. No matter how large or small you want your portfolio to be, be serious about it and keep your business head-on.
5. Make Use of the Experts
When you’re at the start of the journey, make use of experts at every step of the way. This will help reduce the chance of mistakes and ensure more chances of success.
Using services like Roofstock is a great place to start as a team of experts has done a lot of the leg work already. They’ve done their due diligence to find great single family homes to invest in.
The same goes for when you’re renovating. Choose a team of contractors who have worked on rental properties before. They’ll have contacts to get materials cheaper while delivering a high standard.
6. Join a Local Investment Group
There are thousands of real estate investing (REI) groups out there all over the USA. Join up with a few of them and get stuck in. Find the ones with topics and people who interest you and be ready to learn. You want a group that helps newcomers and mentors in areas that you’re interested in.
7. Know Your Local Market
As part of your investment plan, become an expert in your local market of interest. Keep updated with current trends including things like:
- Increase/decrease in average rent
- Interest rates
- Crime rates
- Unemployment rates
- Upcoming local developments
This will help you work out the current market status and put plans in place to future-proof yourself as best you can.
8. Pick Emerging Neighborhoods
Choosing an emerging neighborhood sets you up for the potential to grow. They are also often tax incentives too when you’re buying property there.
You’ll be maximizing your profits. Your rental income should cover your expenses at the very least but in most cases, it has a chance to turn a profit.
9. Look Outside Your Home State
It’s a common real estate investing strategy that the best investments are near you. While this will make managing your portfolio easier, you’re setting an unnecessary limit. You could be missing out on some great opportunities.
Consider looking at other cities, areas, and states. This will give you a larger pool of properties and can provide more opportunities. A more diverse portfolio will also help protect you against changes to the local market.
10. Don’t Go Over the Top Fitting Out a Place
Another good investment strategy is not to go over the top with fixtures and fittings. Rental properties don’t need to compete with Pottery Barn with their decor.
For a high-end market of course you’ll want marble countertops and high-quality fittings. But for lower-end homes, all you need to do is make them clean, crisp, and modern.
It’s okay to work on a budget, in fact, it’s almost an essential tip for financial success. Middle-of-the-road fixtures and fitting are the goals. This will ensure longevity and quality without breaking the bank.
11. Start With Single Family Homes
Single family homes present the safest option when it comes to getting good tenants. If you ask anyone, most people would say they’d love to live in a house, but not everyone can afford to or want to own one. Over the last 100 years, single family homes have always appreciated as an asset.
12. Deal With Maintenance Before It Gets Worse
One thing to consider is writing a bi-annual walk-through into rental agreements. This is so you can ask your renter if they’re noticing wear and tear that needs patching up.
You should also check around and under sinks and toilets and check heating systems. Small repair jobs are easier to fix (and cheaper) than waiting until they’re big issues.
13. Put Aside Funds For a Rainy Day
When buying a rental property, account for all the expenses that come with it. You want to set aside a rainy day fund to cover future expenses and emergencies. A general rule of thumb is about 10% of your annual profit.
It’s not uncommon for rentals in the $800-$1,000 a month range to have expenses reaching 55%+ of the gross rent. This might differ for properties with higher rent. But make sure you’re covered for any unexpected bills.
14. Count On Vacancy Periods
Every investor wants to avoid the black hole of a vacancy period. The only want to do this is to factor in how much it costs to carry the property when vacant. For most, this means expecting there to be some months each year that don’t produce income.
This could be anything between 2-10% less revenue coming in. Assess your property and the tenants you rent to. Use this to work out how much of a revenue loss you should expect, and can handle. This way you can make hay when the sun is shining and prepare.
15. Negotiate on Terms if Not Price
While the price is often the biggest priority it’s not the only one, there are terms to consider too. A lot of the time someone else will make a better offer than you. In this instance, consider giving ground on more favorable terms for the seller.
Something you can do includes:
- Using the seller’s escrow agent
- Upping your earnest money deposit
- Offering a faster closing date
- Lowering the time it takes to inspect
You might not have the highest bid, if they need to sell fast or want an easier sale this could swing things in your favor.
16. As You Grow Your Portfolio Grow Your Team
A lot of new investors want to manage their properties themselves. If you have the knowledge, time, and energy then that can work out well. But as your portfolio grows, you might find yourself stretched too thin.
Before buying a property make sure you’ve done the math. This will help you work out if you can afford a property manager. After all, they’ll charge a fee from your profits to handle all the day-to-day work for you.
If you are doing it yourself, make sure you give yourself pay. This will lower the amount of tax you pay on the profit. It will also help you learn that your time is precious and it’s not free.
17. Get to Know Tax Laws
It’s crucial that you get up to speed with federal and state tax laws. They’re ever-evolving, so this should be an ongoing learning process. This knowledge needs to go further than filing the right deductions and taxes.
18. Don’t Pay too Much
It’s easy to end up overpaying for a property, especially in a seller’s market where they go fast. Don’t bet on appreciation as the only thing making you money. This is a higher-risk strategy than buying at the right price.
When you’re buying a home for a rental, avoid fixer-uppers. You want a property that might need minor repairs but could be good to rent out from day one if possible.
This is where you want to budget for maintenance and your immediate expenditures. Those are numbers you want to crunch before you put an offer in on a home, so you don’t end up paying over the odds.
You want a property that will make you money from the get-go, so don’t pay market value. Otherwise, you might get stuck with something that’s more trouble (and cost) than it’s worth.
19. Keep Contact During Escrow
The deal isn’t done even in escrow. When buying off the market, the seller might have some anxieties about the process. They might worry that it’s legitimate if there isn’t an estate agent involved.
Get the escrow/title company to make contact as soon as they can and make introductions. Make sure the seller knows they’ll be handling the paperwork. This should alleviate some of those worries as they’re a 3rd party involved in the sale.
Also, let the seller know you’ll be in touch at various stages of the process. Stick to what you say and make that contact. It’s the best way to stop the seller from getting cold feet, pulling out of the deal.
20. Research the Market Cycle Theory
Try to learn when it’s the right phase of the market cycle to buy. It’s not the same as speculating, this is trying to think about what could happen to prices over the next 5 years.
If you can buy your homes in a recession or at the early stages of recovery, you’re in for more success. It’s going to give you more capital gains on top of that rental income coming in.
21. Have a Way Out
You should never take on an investment property without having an exit strategy. Say you’re flipping properties. When you don’t have a lot of extra capital behind you at the start, choose a home you can rent too.
This way, if prices fall or you can’t sell it fast, you’re able to make money via renting it out. Anything can happen at any time and this way you may lose tens of thousands, rather than hundreds.
Consider flipping starter homes that fall in the budget of renting for a profit. This way you can build up your capital renting them out for a while. Or at the least you’re reducing your risks should the market take a turn for the worse.
Real Estate Investing Tips You Won’t Want to Miss
So, there you have it! Now you know these real estate investing tips you’re ready to get started.
Real estate investing requires a lot of patience and common business sense. You need to do the math at the start, not only to find properties in your budget but also to protect yourself.
You don’t want to end up in a financial hole, too stretched to pay your debts off with a comfortable margin left over. Be smart, do your research, and don’t be afraid to ask those with more experience.
If you’re looking to finance an investment property, get your rates today. At LendSimpli, we offer competitive rates to investors who want a personalized reliable experience.