Buying and owning real estate is an exciting investment strategy, that can be both satisfying and lucrative.
Unlike stock and bond investors, prospective real estate owners can use leverage to buy a property by paying a portion of the total cost up front, then paying off the balance, plus interest, over time. While a traditional mortgage generally requires a 20% to 25% down payment, in some cases, a 5% down payment is all it takes to purchase an entire property. This ability to control the asset the moment papers are signed emboldens both real estate flippers and landlords, who can in turn take out second mortgages on their homes in order to make down payments on additional properties.
If done right, real estate investment can be lucrative, if not flashy. It can help diversify your existing investment portfolio and be an additional income stream. And it doesn’t always require showing up at a tenant’s every beck and call.
The trouble is that many new investors don’t know where or how to invest in real estate. So here are ten tips for buying your first property from the pros.
#1. Invest in single-family homes first since it’s the simplest way to get started as a new real estate investor. The upkeep is easier than multifamily or commercial properties. With only a single tenant, there doesn’t tend to be as much wear and tear on the property and, when something breaks, you’ll only need to fix one thing.
#2. Buy What You Know.
Invest in a rental property in an area and niche in which you are familiar. Draw from your previous life experiences to gain a competitive advantage. For example, if you’re retired military, then buy a rental property near a local military base for military transfers. If you’re a college alumnus, then buy a student rental near your university’s campus. If you’re a nurse, then buy a rental property for short-term nurses near your hospital.
#3. Buy a Property Near Apartment Buildings .
Buy in an area where there are a lot of apartment buildings. There’s a proven demand for rental properties in areas with apartment buildings since renters are always looking for a place to rent that is a move up from a typical apartment. You will be able to meet that demand and rent out your property without spending as much on advertising costs.
#4. Fix up and resell properties .
This is HGTV come to life: You purchase an underpriced home in need of a little love, renovate it as inexpensively as possible and then resell it for a profit. Called house flipping, the strategy is a wee bit harder than it looks on TV.
There is a bigger element of risk, because so much of the math behind flipping requires a very accurate estimate of how much repairs are going to cost, which is not an easy thing to do.
Find an experienced partner. Maybe you have capital or time to contribute, but you find a contractor who is good at estimating expenses or managing the project,..
The other risk of flipping is that the longer you hold the property, the less money you make because you are paying a mortgage without bringing in any income. You can lower that risk by living in the house as you fix it up. This works as long as most of the updates are cosmetic and you don’t mind a little dust.
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