If you’re looking for a good investment and your dreams of starting a Noodles and Company franchise were squashed by your wife’s gluten allergy, you may want to consider real estate.
Many smart investors, and even some not so smart investors, recognize the potential of real estate buying. And if it’s done properly, it can be a lucrative business. Heck, even if it’s not done right, you’ll just have another place or two to call home.
Now, the last thing you want is a bunch of properties that no one wants. So, to help you make the right calls, we’ve gone ahead and put together six tips to guide you through the world of real estate investing. But first, make sure you're covered with an affordable home insurance policy.
#1. Understand Investing
If you’re thinking that real estate buying is as simple as purchasing a home, you’re as wrong as a dog in a holiday sweater.
As it turns out, there are a variety of ways you can invest in real estate, so you’ll want to determine which one is best suited for you and your budget.
- Invest in online real estate investment trusts through Fundrise
- Buy a home
- Buy rental properties
- Crowdfund with other buyers
- Buy commercial real estate
- Buy and flip a fixer upper
- Invest in real estate exchange-traded funds (ETFs)
- Invest in real estate mutual funds
- Invest in real estate investment trusts (REITs)
- Buy vacation property
- Get involved with lodging apps like Airbnb and VRBO
Whichever route you choose, you’ll want to do plenty of research so you understand all the ins and outs of what you’re getting yourself into. This is not the kind of thing you want to go into all willy-nilly.
#2. Consider Location
It goes without saying that buying real estate somewhere that no one wants to live/work isn’t a wise investment. Spend some time researching local hot spots and ask around to make sure you’ve got your eyes on the right property in the right neighborhood.
You’ll often hear others say to look for the worst house on the best street. This allows you to do a little damage control and then sell a beautiful property in a great neighborhood to an eager buyer. Cha-ching!
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#3. Don’t Ever Pay Full Price
An investment is an investment, so whether it’s stocks, bonds or real estate, never buy high.
In fact, if you’re a handy guy or gal, you may want to consider going after an inexpensive fixer upper. But if you’re more of a "pay someone else to do it" kinda guy or gal, just be sure to do your research on home prices in the area before jumping into a piece of property.
#4. Know Your Market
There are some places in the United States where real estate has jumped 18% in the last year. There are other places where real estate is in the negative. Be sure to know the lay of the land of the market you’re shopping.
Some things to know include:
- Average rent
- Interest rates
- Unemployment/crime rates
#5. Understand Tax Laws
Buying real estate is one thing the government really wants you to do. That’s why they’ll provide awesome tax benefits to those daring enough to invest in real estate.
Depending on what you buy, you can write off depreciation, mortgage interest, insurance, maintenance expenses, furniture and more. This will all depend on the type of purchase you make and the state, county and city your property is located in. So make sure you’ve got a clear picture of where you’re looking to go after before cutting that check.
#6. Have an Exit Strategy
Real In real estate, timing is key. Getting into a new property at the right time is a huge help, but so is getting out. An exit strategy is how you plan to remove yourself after the real estate deal is done.
According to Homes4Income, there are a variety of exit strategies, but these are the top five:
- Wholesale: Buy a super-discounted property and resell it to other investors for a sweet profit.
- Flip: Not like a back flip, but where you make over a house from “all drab” to “totally dreamy.”
- Buy and hold: This allows you to build equity in the house through renting.
- Seller financing: The buyer and seller go into a financing deal together.
- Lease or rent-to-own: Rent or lease to a tenant who has a contract to buy.
You don’t always need a lot of money or even a ton of time to get into the real estate investment world. You just need a smart head on your shoulders, some cash, and this article. Just make sure you're covered with an affordable home insurance policy.
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