If you’re preparing to embark on investing in real estate for the first time, be sure to read this, it would do you a world of good.
Real estate is a tricky but highly lucrative business with a lot of ins and outs that can be difficult to navigate. Getting the right information and orientation is the key.
I often hear people say they want to invest in real estate, but many do not know what to do, how exactly to go about the processes or what to expect.
How do I make money in real estate? How to become a real estate investor? Which investment strategies to adopt? What are my chances of hitting a gold mine or making a loss?
These are questions that pop into mind when considering investing in real estate. But, you don’t need to worry. Investing in real estate is much simpler than you think, you just need to have the right information and strategies at your beckon.
Below are things to know before you start investing in real estate.
#1: Start Small
My best advice to first-time real estate investors is to start small. Make sure the payment is one that you could pay on your own without necessarily having to borrow. In the event that you have to get a loan or mortgage, ensure that you have a repayment schedule in place. Find a property that is easy to manage and has low operating costs.
#2: Consider the 1% Rule
The 1% rule is your cash flow formula. While many real estate investors have different goals as far as returns, the majority will agree that income generated from an investment property must abide by 1% rule. The 1% rule means that your monthly rental income must be at least 1% of the purchase price of the property.
For example, if you bought a house for N5 million, N50,000 should be earned in rental income. Take this as a rule of thumb when considering becoming a real estate investor and purchasing a rental property.
#3: Don’t Speculate
All too often, I see first-time real estate investors speculating on a property with an eye toward a price appreciation. My advice is for a first investment property to be one that generates cash flow. A good, stable, middle-class rental property is an example. By doing so, the investor limits their risk in a downturn. True real estate wealth is based on cash flow.
#4: Draw up a list of possible expenses
Often times, real estate investors fail to enumerate all expenses associated with an investment property. Before investing in real estate, you must assess the type of expenses that you will be indebted to pay. By doing so, you limit any possibility of having a negative cash flow.
Investment property expenses that you should know before investing in real estate come in two forms: Fixed and Variable Expenses.
Fixed expenses cover routine costs associated with purchasing an investment property like annual property taxes, insurance, maintenance and repairs, and the cost of property management services whilst Variable expenses is extra set aside for any contingencies.
#5: Find an Expert
Take your time and really understand the market. You don’t have the buy near your location, but you do need a trusted advisor that is local. Be careful, and don’t blindly trust the numbers. Verify with an advisor who doesn’t have a stake in the deal. Find a good property manager who can give you an unbiased assessment of the rent and the property.
#6: Keep Your Emotions In Check
When investing, I think it’s even more important that you stick to your principles (not in a rigid way though) and don’t overbid just to get your first deal done. Don’t get overly excited or downcasted. Know when to pass, and keep searching for the right deal to set you up for future success.
#7: Learn How To Negotiate
Ability to negotiate is one of the skills that differentiate successful investots from mediocre. Yes, we know you have the money and can’t wait to become a land or house owner. But perhaps that property can be purchased at a lower rate? This also works the other way round. In selling, you should not be in haste to let go of a property. You may get better deals that it deserves. It’s also okay to listen to potential buyers, you may not always get to sell the property at the price you wish. And that’s okay.
#8: Document Everything!
Whatever you do, ensure you have documents as a proof. Real estate is a serious business. Although legitimate, many are in it to take advantage of unsuspecting persons. In choosing a real estate agent, there are companies that can assist you to do that. There should also be legal documents at every point to bind your agreements with other people.
#9: Trust your gut feeling at all times
If somethings doesn’t feel right about a property you’re about to invest in, it is adviceable to re-evaluate your standing before going ahead.
If you cannot confidently talk about a property you intend to sell to someone, something might be wrong. Integrity is essential in everything, real estate business included. If something is not right with the building or land, if you are going to have issues speaking about it when it’s time to sell, maybe you should not buy it in the first place.
#10: You will need a Property Management
Being a landlord can be a bit assiduous, and especially for those real estate investors with investment properties out of state. Fortunately, today you can hire a third party property management service to run your investments for you while keeping you updated. If you have a busy schedule and investing in real estate is not your primary job, property management services will come in handy.
Hiring a property management company to deal with your investment properties for you will be beneficial because:
- You will not have to deal with messy legal problems
- You will be able to diversify your investment portfolio and buy more properties
- Management companies will be in charge of the maintenance and repair thus lifting off such burden
- You as a real estate investor will be able to purchase more investment properties in remote locations while appointing a management service to run them.
READ ALSO: How To Get Professional Property Manager
#11: Know Your Exit Strategy
Are you looking to hold the property and rent it for positive cash flow, or are you seeking to fix and flip for a quick profit? If renting, understand the rental market. If flipping, check your renovation estimates and your after repair value (ARV). Can you still profit if costs are higher or the sales price is not the full ARV, if you need to drop the price for the property to sell?