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July 18th, 2018 by Marco Santarelli
Real estate investment has long been one of the surest ways to become wealthy. Buy or secure title to land. Develop improved agricultural potential of the property or build housing you can rent out, or make the investment property more attractive to tenants so you can charge higher rent. These are the common ways to be successful in real estate investing.
The real estate market is always changing, and not just in terms of where people want to live. But we all know that real estate provides better returns on investment than the stock market without as much volatility. In real estate, your risk of loss is minimized by the length of time you hold on to your investment property. When the market improves, so does the value of your property. Here are 10 ways to become successful in real estate investment.
10 Ways To Become Successful In Real Estate Investment
Avoid Hot Markets
A good rule of thumb for investing in real estate is to avoid hot markets altogether. Real estate investors here may brag about the appreciation of their properties or rising rates, but new real estate investment is buying high and hoping it goes higher. You risk buying at the top of the market and losing your money.
Real estate investing can be compared to investing in dividend paying stock. The return on investment is based on how cheap you bought the commodity. However, you have to look at the return on the investment. A cheap little house in an unsafe neighborhood can be bought for little money, but you won’t get much money from it, either.
Tap into the Hidden Market
The ideal case is buying property from a distressed seller. Forget foreclosure auctions; this can yield deals, but you’ll often find properties in dire need of repair. Instead, look for homes with distressed sellers who haven’t put it on the market yet. The couple going through a divorce or family that wants to sell Mom’s home after she passed are the ideal sellers; they just want to get the money, and the buyer is probably getting a well maintained home.
Understand Your Costs Up Front
If you’re new in the business of real estate investment, it is crucial to understand your costs up front. It isn’t just the cost of the property and realtor commissions. You’ll need to pay for repairs, and too many newcomers to real estate investing don’t know how to accurately estimate costs to repair that cracked foundation, fix electrical problems and address pest infestations. Don’t think you can solve the problem by working on weekends to add a little paint. Most DIY work detracts from the value of the home, and trying to fix someone’s electrical and plumbing issues yourself may make it unsellable unless you’re already capable of doing work like this to code. Others fail to budget for closing costs, insurance or utility costs and end up losing money on a deal.
Understand the Market
One of the best ways to avoid problems when investing in real estate is to understand the market. Know how much the typical house in a community is worth per square foot and the rent you could charge for a given investment property. Renovate properties in ways that make it more appeal to the expected buyer. For example, never reduce the bedroom count in a family friendly community. Nor should you reduce the size of the closet or shrink the master bath to put in a hot tub few in the area would appreciate. Don’t rip out a good yard to put in a pool if there is little demand for it. Choose the best real estate markets like the metro Atlanta area which has seen stellar growth in real estate. In the Atlanta real estate market, demand has caused home values to rise around ten percent a year for the last few years. Housing prices in Atlanta dipped in 2017, allowing prices to adjust. Average home prices today are similar to where they were at the 2006 peak, but they’re actually more affordable when you take inflation into account.
Manage Your Risks In Real Estate Investment
There are several ways in which you can manage risk in a real estate investment. First, don’t go deeply into debt. When buying an investment property, aim to put at least 10% down. Twenty percent is better, since it eliminates private mortgage insurance and often yields a lower interest rate on the loan as well. Second, maintain a large cash reserve. You’ll reduce the risk of having to sell a property fast at a loss if you have the cash to carry the property longer before it needs to move. By having a larger cash reserve, you’ll also be able to pay for unexpected repair bills before you can put property on the market. Running to a hard money lender to get the last $20,000 to fix a property is possible, but it comes with a high interest rate that eats into your profit margin.
Go for Best in Class – Not “The Best”
A common mistake in real estate investment is trying to develop a property to be the best in the area. They may try to renovate homes in a working class area and turn it into a luxury home. You can’t sell that for the same price you would receive in an upscale area. You end up losing money. Over-building a home is wasteful. Go for “best in class” touches, not trying to make an office building the fanciest or elite product. First, fix everything that is broken or damaged. Then make little changes that stand out but don’t cost much. Two-tone paint over a single color paint job is one good example. More convenient soap dispensers and trash receptacles are another. Skip the Corian or granite countertops, the top of the line appliances, or expensive decorating.
Maximize Value of Real Estate
Look for ways to maximize the value of the real estate, eking out more profit for the same investment property. It could involve renting out a corner to a bank to install an ATM. You could rent out space in the lobby for a small commissary, generating rental income from what otherwise failed to add to the business’ cash flow. 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. Or add a concierge or security guard to the building. Now you can charge higher rent for a more attractive property.
Another variation of this applies to house flipping. Instead of buying the home, fixing it up and selling it to a home buyer, fill it with a tenant, instead. Once the tenant has moved in with a lease, start looking for buyers. This is a turnkey property attractive to anyone who wants to jump immediately into real estate investment.
Know the Rules and Regulations of Real Estate Investment
Don’t turn that basement into a second rental unit until you know whether or not that’s allowed. Don’t convert the first floor of the building into commercial space if local zoning laws prohibit it. Be careful about food service business rules before you replace a break area full of vending machines with a little sandwich shop. Never assume you can add another room or second story to a building. Understand the degree of work that requires a permit before you start it.
Consider Non-Traditional Real Estate Investments
Remember that real estate investing doesn’t have to equal a choice between investing in single family homes and apartment buildings. You could invest in office buildings, storage unit complexes, industrial space and warehouse. All of these 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 tenant covers basic insurance and pays the property taxes and maintenance. Your investment then yields steady cash flow with few out of pocket expenses.
Manage Your Emotions
Don’t buy a property for which the math looks bad because you’re afraid you’ll lose out on the deal. Never fall in love with an investment property. You’re not going to live there – someone else will. Be aware of your own risk tolerance. Then take action to manage the risk, whether you’re avoiding the fixer-upper you’re afraid will be a money hole or improving your cash position before you buy it. If you can’t handle the potential stresses of fix and flip, buy turnkey properties instead.
Is Real Estate A Good Investment?
Real estate is a great investment option for those who want to achieve financial success. There are a number of benefits of buying investment properties over starting your own business. Investing in real estate is a great step towards achieving that much desired financial freedom. Real estate investment offers better cash flow prospects than the stock market. Investing in real estate can be much safer than investing in the stock market or a small business, since the underlying property retains its value. However, you need to take care to avoid mistakes that cause so many dreams of getting rich investing in property turning into nightmares in bankruptcy court.
If you are a beginner in rental property investing, it very important to read good real estate books and learn from the savvy investors who have made fortunes by investing in some of the best real estate markets Atlanta Real Estate Market and Indianapolis Real Estate Market.
We also recommend these 8 hottest real estate markets 2018 for investors looking to build their portfolio of single family rental homes. Following the housing market decline in 2007, single family rental properties became favorable options for investors, saving in construction or refurbishment prices. The quick turnaround for an owner to rent out their property means cash flow is almost immediate. Single family rental homes have grown up to 30% within the last three years. Almost all the housing demand in the US in recent years has been filled by single family rental units.
https://www.huffingtonpost.com/aj-agrawal/5-basic-tips-for-investing-in-real-estate_b_9072532.html https://money.usnews.com/money/personal-finance/articles/2017-06-29/9-secrets-of-successful-house-flippers http://www.remodeling.hw.net/business/leadership/buy-fix-sell-profit-flipping-homes-can-be-lucrative-but-its-not-for-the-timid https://www.forbes.com/sites/forbesrealestatecouncil/2018/02/23/18-ways-new-real-estate-investors-can-succeed-in-2018/#6ccdd9f12980
*Remember, caveat emptor still applies when buying a property anywhere. The information contained in this article was pulled from third party sites mentioned under references. Although the information is believed to be reliable, Norada Real Estate Investments makes no representations, warranties, or guarantees, either express or implied, as to whether the information presented is accurate, reliable, or current. All information presented should be independently verified.
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