According to the National Association of Realtors, approximately 5.51 million existing homes were sold in 2017. While many of these homes were undoubtedly purchased to house the buyer's own family, others were certainly flipped or turned into income properties. If the thought of residential real estate investing excites you, you're definitely not alone — but you need to be smart about it. In order to ensure that your investment is a truly sound one, you'll want to follow these three “musts” before you sign on the dotted line.
Have an Inspection Performed
Whether you're buying for investment purposes or not, you absolutely have to obtain a home inspection. You should conduct your own visual inspection of the home to assess any obvious defects first, such as foundation cracks or water damage. While 95.1% of consumers say they expect their furniture to last for many years, the truth is that the structure that the furniture is housed in might not actually be as sound as you'd assume. Thus, you'll need to have an expert inspection performed to catch any defects that aren't so easy to see. While sellers are required to disclose defects to the buyer, some current owners may choose to plead ignorance. While 65% of homeowners say they're likely to repair a roof due to weather damage, they might not be upfront about the fact they opted for a patch job instead of a whole new roof. That's why you need to make your home inspection part of your contract's contingency — or even conduct what's known as a pre-inspection before you make an offer. That can make your offer a bit stronger if you're competing against multiple buyers or you simply want to make sure that this house is really the one you want to make an offer on.
Gain Understanding Into Neighborhood Changes
Before you make an investment in any type of property, whether it be residential or commercial, you need to have a good understanding of the community in which it's located. If you make assumptions about the neighborhood, you might end up choosing a poor location or one that could impact your ability to rent or resell at a profit. Of course, your real estate agent cannot provide you with data pertaining to certain resident demographics in order to comply with federal fair housing laws. However, they can provide insight into the home prices within the neighborhood, new attractions and amenities being built, green spaces, schools, and more. You can also conduct some of your own research to supplement what your agent is able to tell you — but any realtor you work with should have a good amount of helpful data for you. Using this information, you can assess whether you'll be able to flip a home, rent to tenants at a price they can afford, want to live there yourself, or should decide to look elsewhere.
Learn About the Property's Sales History
Real estate investing is not just about the here and now, nor is it only about predicting future trends. You'll also need to take into account the history of a given property to ensure your investment is a good one. A property that was foreclosed upon and owned by a bank at one time may indicate the home was difficult to sell or that necessary upgrades just couldn't be made to sell it. It could also indicate you may be able to snag a great deal on the property and potentially make more if you resell it or turn it into a rental property. This information might not matter as much as, say, neighborhood comps or what you find in the home inspection. However, it's incredibly useful information for investors in particular — whether you're trying to restore a historic home or want to rent it out.
Investing in residential real estate can be an exciting venture (and a real money-maker, if you play your cards right). But in order to make the most of your financial decision, you can't be afraid to ask questions. Rather than take a property at face value, you'll have to dive a little bit deeper and gather more information so you know your decision is a solid one.