The real estate market is always changing. Stock markets may be rewarding at times, but, real estate assures a stable and better return on investment. Your risk of loss is minimized in real estate investments. There may be some dips at times, but eventually property prices rise substantially over time. Here are some tips on how to become successful in real estate investment.
1. Choose your market wisely
For successful real estate investment, it’s more important to know your local market. Your investment and its success will be most affected by the factors at work in your specific real estate market.
Avoiding very hot markets is a good rule of thumb to become successful in investing. Some real estate investors may brag about the appreciation of their properties or rising rates, but, there are points you must consider before buying.
You need to find markets that are in the stage of development – where sales and prices are increasing, affordability is adequate, construction is low and capital investment is rising.
For a successful investment, your focus should also be on the location of the property within the market. You need to invest in those areas which have high population density, are expanding, and have all basic comforts conveniently available.
A summary of demand for good housing:-
- Low crime rate
- Great schools
- Access to parks
- Access to the medical facility
- Access to public transportation
- Access to shopping malls and restaurants
2. Invest sensibly
Real estate investing can be compared to investing in a dividend-paying stock. The return on investment is based on how economically you buy the property. Since the return is on the purchase price.
Note: A cheaper and smaller house in a risky area can be bought for a lower price, but, the rise in the prices will also not be much in future. The decision is up to you!
3. Facts of Hidden Market
The perfect case is buying property from a distressed seller because you can get it in less money than its actual market value. Forget foreclosure auctions; this can yield deals, but you will always find properties in horrible conditions. Instead, look for houses with distressed sellers who haven’t put it on the market yet.
For example, the couple going through a divorce or family that wants to sell Mom’s house after she passed are the suitable sellers, they just want to get the money, and the buyer is possibly buying a well-maintained house.
4. Know Your Costs Up Front
It is important to understand your costs upfront if you are new in the business of real estate investment. It is not just the cost of the property and agent commissions. Too many newcomers to real estate investing don’t know how to exactly estimate costs to repair broken things, fix electrical problems, and address pest infestations.
Don’t think you can solve the problem by working on weekends. Most of the work detracts from the value of the home, and attempting to fix someone’s electrical and plumbing issues yourself may make it unsellable unless you’re already capable of doing the work. Others fail to budget for closing costs, insurance, or utility costs and end up losing money on a deal.
5. Know The Real Estate Market
When investing in real estate the best way is to try to understand the market first. Knowing your real estate market will help you to calculate the price of an investment property. Know how much the normal house in an area is worth per square foot. This will help you to know the market better and you can invest wisely.
6. Avoid Your Risks In Real Estate Investment
There are many ways in which you can avoid the risk in a real estate investment. First, don’t go deeply into debt. When buying a property for sale, aim to put at least 10% down.
Twenty per cent is better since it eliminates private mortgage insurance and always results in a lower interest rate on the loan as well.
Second, conserve a large cash reserve. You will decrease 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.
7. Go for Best Option
A common mistake in real estate investment is finding a property in the best area. They may try to rebuild homes in a working-class area and turn it into a luxury home. You tend to not sell this for the same price you would receive in an upscale area. It ends up in the loss of money. Over-building a home is unreasonable. Go for nice options not trying to make an office building an elegant or special property.
8. Maximize the value of Real Estate
To maximize the value of the real estate, look out for more profit for the same investment property. Renting is the best option for it. You could rent out your space. In an apartment complex, you can look for value-added services. For example, offer trash pickup from someone’s door to the dumpster for a modest fee per month.
You can add a security guard to the building, this way you can charge higher rent for a more attractive property.
Another variation of this applies to house flipping. Rather than buying the home, repairing it and selling it to a home buyer, fill it with tenants. Once the tenant has moved in with a lease, start looking for buyers to sell the house.
9. Understand the Rules and Regulations of Real Estate Investment
Don’t turn the basement into a second rental whether it’s allowed or not. Don’t try to convert the first floor of the building into commercial space if local zoning laws restrict it.
Never determine that you can add another room or second storey to a building. Understand the extent of work that requires a permit before you start it.
10. Contemplate Non-Traditional Real Estate Investments
The real estate investment doesn’t have to equal a choice between investing in homes or apartment buildings.
You could invest in office buildings, warehouse, complexes, industrial space.
All of these real estate investments generate rental income. In the case of offices and industrial buildings, you may be able to reduce overall costs with a triple-net lease where the renter covers basic insurance and pays the property taxes and maintenance. Your investment then results in constant cash flow.