Property Investment 101 – Tips for Beginning Investors
For beginning investors who are just starting out, property investment can be a field of golden opportunities or a minefield of disasters waiting to happen. Here are some tips for starting your real estate business the right way:
1. Keep your job. You are investing money and time in something that has risks, so make certain that you have a reliable source of income. You are building for your future, not the short term; although short term profits are always attractive!
2. Invest for the future. Many beginning investors believe that finding and flipping is a path to short term profit. It can be, but you assume risk and it is a lot of work. Have a plan in place for the long haul, and an exit strategy for every property you purchase should there be a market downturn or unforeseen events.
3. Properties must show a positive cash flow. If you are buying a building with tenants, make certain it is profitable and is likely to remain so after your purchase. This includes the outlay for improvements you may need to make after purchase. If you are finding, fixing and flipping, have a formula for paying the right amount for purchase, and allow for reasonable costs for repairs and remodeling, back taxes, finance charges, etc. Have a marketing plan in place so that you are not holding this property forever.
4. Buying what you love is sometimes recommended, but be certain that falling in love with a property does not cloud your investment judgement. Is that historical house you want to lovingly restore to its former glory in a neighborhood that will generate the rental income or profit at sale that you need? Is there a likelihood that the property will attract a new generation of tenants or buyers who want such a renovation?
5. Know your market area. Know if the area is on the upswing or on the decline, and if the vacancy rate is high. Have a good sense of the neighborhood, the types of people who live there, the income, the job prospects.
6. Plan for taxes Property taxes usually go in one direction – up. Make certain you have a cushion to plan for tax increases, and know if there are tax liens to be satisfied. If the municipality assesses a big increase, have an appraisal and be prepared to appeal.
7. Plan for property management. Owning a building with tenants is about more than collecting rent and keeping the heat turned on. You will save yourself time, aggravation, and a lot of lost revenue by retaining a qualified property management firm to handle the day to day business of operating the building.
One thing many investors find they love about real estate is that it is never boring! There are always new challenges and new opportunities! Contact me for all your real estate investment needs.