Real Estate Investing For Beginners: Money Advice To Build Wealth With Real Estate
Real estate has remained one of the best investment opportunities, regardless of what “the market” is doing. People are always looking for homes, whether the market is good or bad.
Therefore, real estate investing for the long term is always a wise choice compared to other options.
Here are some tips on real estate investing for beginners.
1. Consider The “Pays For Itself” Model
This is sometimes referred to as the “buy and rent” strategy. The idea is that a real estate investor buys a property and rents it for a price that will cover both the mortgage payment and maintenance costs. The property “pays for itself,” in other words.
The upside to this strategy is that so long as the buyer is renting out the property, charging enough, and keeping the property occupied, out-of-pocket costs are minimized.
So long as the mortgage payment is covered and the maintenance costs are not excessive, this model can be a fantastic long-term real estate investing strategy for those looking to get into real estate investment.
Disadvantages to this strategy include the owner being responsible for all maintenance costs in the lease agreement. For example, if the contract says the owner is responsible for repairing the HVAC unit, then the owner has to pay for it when it breaks down.
Additionally, the owner needs to make the home’s down payment, and they are usually responsible for cleaning up the property after one renter moves out before renting it to a new tenant.
2. Find A Good Investment Mentor
A good investment mentor has a real investment history and a proven track record through years of selling properties. A good mentor doesn’t claim to have secret insider information they want to sell to prospective investors; they are simply willing to share.
If the buyer feels the investment advisor has good advice and experience, they can be a valuable source of information. Another thing to remember is that many people want to be mentors and share their knowledge with others, but often, very few people ever ask.
3. Learn About The Local Real Estate Market
Visit a real estate lender before even talking to a real estate professional within a local market. Reviewing the pre-qualification process with the lender will provide a maximum amount the bank is willing to lend and therefore set a cap on the property that an investor can buy.
For example, if the bank will only pre-qualify a buyer for a $500,000 mortgage, they can eliminate every $510,000 and above property from their investment search.
Once buyers know their pre-qualification limit, they should begin researching their local market to determine which property is best to invest in.
What is the median price properties have sold for in their local market over the past year? How many were sold? What were the specifications of these properties (square footage, number of bathrooms, etc.)? What’s next if the buyer’s first choice for a geographic area is out of their pre-qualification price range? What is the nearest suburb where homes are being sold within their budget?
Investors can save time and effort by limiting their search for properties to realistic goals within the buyer’s pre-qualification limits.
4. Determine “Hands-On” Or Managed Investment
Before investing in a real estate property, one significant consideration is how much involvement you want. If an investor has handyman or “fix it up” skills, it can save considerable money in the long term on expenses like plumbers, HVAC repairs, and other maintenance costs.
However, this requires the investor to be a very “hands-on” landlord, and not everyone can have this type of relationship with renters.
Hiring a residential property manager can be a better option if a buyer does not want to be a full-time landlord. The manager collects rent, screens potential renters, and handles repairs anytime the property requires routine or “surprise” maintenance.
While hiring a property manager will cut into the property’s profit margin, it can also be an excellent way for a beginner to learn more about real estate investing.
Every buyer should decide whether they want to be a “hands-on” landlord or if they want to give those duties to a property manager.
Choosing between the two before making that first purchase can make a big difference in whether the experience will be successful.
Remember That A Real Estate Pro Works For You
Real estate professionals will collect a commission from the sale price if they help a buyer purchase an investment property. These professionals can be indispensable assets when considering real estate purchases.
Finding FSBO (for sale by owner) properties can be challenging for a new investor, and that new investor is unlikely to know all the “ins and outs” that a pro will know. Rely on the expertise of others to ensure success in a real estate investment venture.
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