How To Be Successful In Real Estate Investing?
Real estate investment has long been one of the surest ways to become wealthy. Buy or secure title to land. Develop the improved agricultural potential of the property or build housing you can rent out, or make the investment property more attractive to tenants so you can charge higher rent. These are common ways to be successful in real estate investing.
The real estate market is always changing, and not just in terms of where people want to live. But we all know that real estate provides better returns on investment than the stock market without as much volatility. In real estate, your risk of loss is minimized by the length of time you hold on to your investment property. When the market improves, so does the value of your property. Here are 10 ways to become successful in real estate investment.
Avoid Hot Markets
A good rule of thumb for investing in real estate is to avoid hot markets altogether. Real estate investors here may brag about the appreciation of their properties or rising rates, but new real estate investment is buying high and hoping it goes higher. You risk buying at the top of the market and losing your money.
Real estate investing can be compared to investing in a dividend-paying stock. The return on investment is based on how cheap you bought the commodity. However, you have to look at the return on the investment. A cheap little house in an unsafe neighborhood can be bought for little money, but you won’t get much money from it, either.
Tap into the Hidden Market
The ideal case is buying property from a distressed seller. Forget foreclosure auctions; this can yield deals, but you’ll often find properties in dire need of repair. Instead, look for homes with distressed sellers who haven’t put it on the market yet. The couple going through a divorce or family that wants to sell Mom’s home after she passed are the ideal sellers; they just want to get the money, and the buyer is probably getting a well-maintained home. A great example is the Kenwingston Platz Property Launch. You can find out more about this property by click here.
Understand Your Costs Up Front
If you’re new in the business of real estate investment, it is crucial to understand your costs upfront. It isn’t just the cost of the property and realtor commissions. You’ll need to pay for repairs, and too many newcomers to real estate investing don’t know how to accurately estimate costs to repair that cracked foundation, fix electrical problems and address pest infestations. Don’t think you can solve the problem by working on weekends to add a little paint. Most DIY work detracts from the value of the home, and trying to fix someone’s electrical and plumbing issues yourself may make it unsellable unless you’re already capable of doing work like this to code. Others fail to budget for closing costs, insurance or utility costs and end up losing money on a deal.
Understand the Market
One of the best ways to avoid problems when investing in real estate is to understand the market. Know how much the typical house in a community is worth per square foot and the rent you could charge for a given investment property. Renovate properties in ways that make it more appeal to the expected buyer. For example, never reduce the bedroom count in a family-friendly community. Nor should you reduce the size of the closet or shrink the master bath to put in a hot tub few in the area would appreciate. Don’t rip out a good yard to put in a pool if there is little demand for it. Choose the best real estate markets like the metro area which has seen stellar growth in real estate. In the real estate market, demand has caused home values to rise around ten percent a year for the last few years. Housing prices dipped in 2017, allowing prices to adjust. Average home prices today are similar to where they were at the 2006 peak, but they’re actually more affordable when you take inflation into account.
Manage Your Risks In Real Estate Investment
There are several ways in which you can manage risk in a real estate investment. First, don’t go deeply into debt. When buying an investment property, aim to put at least 10% down. Twenty percent is better since it eliminates private mortgage insurance and often yields a lower interest rate on the loan as well. Second, maintain a large cash reserve. You’ll reduce the risk of having to sell a property fast at a loss if you have the cash to carry the property long before it needs to move. By having a larger cash reserve, you’ll also be able to pay for unexpected repair bills before you can put the property on the market. Running to a hard money lender to get the last $20,000 to fix a property is possible, but it comes with a high-interest rate that eats into your profit margin.
Go for Best in Class – Not “The Best”
A common mistake in real estate investment is trying to develop a property to be the best in the area. They may try to renovate homes in a working-class area and turn it into a luxury home. You can’t sell that for the same price you would receive in an upscale area. You end up losing money. Over-building a home is wasteful. Go for “best in class” touches, not trying to make an office building the fanciest or elite product. First, fix everything that is broken or damaged. Then make little changes that stand out but don’t cost much. Two-tone paint over a single color paint job is one good example. More convenient soap dispensers and trash receptacles are another. Skip the Corian or granite countertops, the top of the line appliances, or expensive decorating.