If you’re just beginning to invest in real estate, you’ll find that there’s a lot to learn. In this article, we share five basic tips for investing in real estate.
Real estate investing is more complicated than investing in stocks because of the financial, legal, and extensive due diligence requirements involved. That’s why it’s a good idea to give yourself a solid education before you purchase your first investment property.
However, before you get your advanced degree, it’s a good idea to familiarize yourself with the fundamentals.
One sure way of getting yourself acquainted with the rudiments of real estate is via Debo Adejana Seminars which comes alive this February
That said, here are 5 basic tips for investing in real estate.
1. Location Matters
The old adage that “location matters” is most accurate when it comes to real estate investing. Before you fork over a down payment and put yourself in a significant amount of debt over a property, ensure that it’s in a good location.
Look for the worst house on the best street. That’s a principle you’ll come across quite a bit as you delve into further real estate investing advice.
You want to invest in the worst house on the best street because it gives you an opportunity to build equity. It’s a property in a great neighborhood (“the best street”) that needs some work (“the worst house”). You can invest some money to fix it up and sell it to someone else who wants a ready-to-move-in house in a fabulous location. Professional real estate investors call this “fixing and flipping.”
2. Look for Wholesale Properties
Investing in real estate is just like investing in the stock market in at least one way: you’re looking for the best deal. If you’re a savvy stock market investor, you probably won’t buy too many stocks at their high if you plan on holding them for a long time. Instead, you’ll follow the Warren Buffet principle of getting greedy when everyone else gets fearful. You’ll buy stocks that are beaten down and make a fortune when they turn around.
That’s what you want to do when it comes to real estate investing. Avoid paying “full price” for properties. Instead, look for so-called wholesale properties that are offered at a steep discount. Sure, they’ll probably need some work. Run the numbers and see if the investment in rehab is worth the ultimate selling price.
As noted at ThinkConveyance: “You can easily invest $20,000 in a property and add twice that much to the selling price. That’s why real estate investing is so attractive to investors who want to maximize their return on investment.”
3. Real Estate Appreciation
The value of a property on the long run should also be put into consideration when investing in real estate. Simply put, real estate appreciation is when a property increases in value due to a change in the real estate market, the land around your property becoming scarcer or busier like when a major shopping center is built next door, or upgrades you put into your real estate investment to make it more attractive to potential buyers or renters. However, real estate appreciation is a tricky game, but it is also a goldmine all things being equal.
4. Always Remember about Cash Flow
When you are buying a property always remember your set goals about that property. Buying a property that almost empties your account but with the possibility of giving you high quality tenant, yet low at maintenance, is a far better investment than a property that though cut down low from your pocket yet consumes ample time and money every month on maintenance. That kind of property is hardly worth procuring.
5. Use the “1% Rule”
If you’re planning on buying a property that you’ll rent out one or more tenants, use the “1% Rule” when you decide whether or not the property is worth the price you’ll pay for it.
The 1% Rule simply states that an income producing property must produce 1% of the price you pay for it every month. For example, if you’re looking at buying a property for N15 million, then the monthly rental income should be 15,000,000 x 1% = N150,000
Wrapping It Up
Real estate investing offers the potential for fabulous returns. However, people have also bankrupted themselves investing in real estate. Be sure that you know what’s involved before you start.