Investing in real estate the right way can provide a secure financial future. However, many traps exist to avoid, including paying too much or not getting enough rental income to cover ongoing costs and expenses. Seasoned property investors have made mistakes and learned from them, and now you can read our top seven tips for novice investors. Hence, your real estate investing is profitable and enjoyable.
Real estate investing is a great way to make money and build wealth. But, like any business, investing for beginners takes time, effort, and knowledge to succeed. If you’re considering investing in real estate, here are seven tips to help you get started and grow.
1. Real Estate Investing Is A Business
The first lesson for you is – property investment must be run as a business. While you are buying houses, they are not for your personal use. Purchasing properties for rental income must make a profit to be a successful investment. Look at every rental property purchase as an investment that must make a profit.
Just like running a business without personal emotion in buying and selling, the same applies to buying and selling investment properties. Successful rental property purchases are based on the numbers. For example, the rental income must exceed expenses, including:
- Loan repayments
- Property Management Fee
Property investors want to pay as little as possible, less than market value. They are happy to buy do-ups and renovate the houses to the standard tenants expect. The renovation will add value to the eventual sales price, but more importantly, it secures more rental income to provide after expenses. Plus, the property’s value goes up over the years, and so does its equity.
Every action you take is to secure a long-term investment that returns a profit after expenses like owning a business.
2. Do Your Research
Read books, attend seminars, and talk to other investors in discussion forums and your local property investor association. The more you know, the better prepared you’ll be to make money in real estate the right way. Typically someone keen to get started in real estate investing will spend a year (yes, it may seem like a long time). The more you learn, the more you realize you need to know before taking the plunge and buying your first rental property.
Another way to upskill your knowledge of real estate investing is to communicate regularly with real estate sales professionals, says Pinnacle Buyers Agents. Reach out to your local real estate agencies to research a property market. You will want to study what homes sell for and the price movements, i.e., how they value over time.
3. Finding The Right Property
Once you’ve researched and feel confident you know enough to get started, it’s time to find the right rental property for your budget. Remember to view many properties in the area you want to buy in. When you know what properties typically sell for, you will not fall for any agent tricks to get you to pay more than the home is worth.
When you buy well, i.e., below market value, you know you’d make a profit if you had to sell at any time.
Look for properties that are up and coming rather than at the top of the market. If investing in a family home, look for good school districts, services, and infrastructure to attract tenants. If you’re looking for tenants that are career professionals, choose townhouses, apartments close to entertainment and restaurants, and public transport.
Location is a top priority, so you attract the correct type of tenants, and your rental property has a low vacancy.
3. Mortgage Preapproval
Securing a mortgage for an investment property is not the same process as getting a loan for your home. As part of your research, ask investors how they chose their mortgage provider and what you need to consider when selecting an investment mortgage. There are a few things to keep in mind when getting a loan for a real estate investment.
- Get preapproved for a loan before you make an offer on a property
- Know the different types of mortgage products e.g.fixed-rate or adjustable-rate mortgages, loan terms
- Know how much you are putting in as a deposit, i.e., a down payment
You can never know much about mortgages; property investors always discuss interest rates and loan products. Choosing the correct term and interest rate can save you thousands on repayments, shortening the time to pay off the loan amount.
Get advice from a financial advisor or loan officer to see what type of loan is best for you.
4. Get A Lawyer
Engage a property lawyer early on so they know your intentions and when you will need their service. A big mistake many novice investors make is they fail to use professionals before signing the sales and purchase transaction.
5 Get An Accountant
Also, let your accountant know you’re buying an investment property. Your accountant can look at your financial position and provide valuable input into how much you can afford. This is your actual budget for property purchase – not the loan amount a mortgage lender has preapproved.
6. Sales Transaction
When your offer has been accepted, you have time on your side to get your lawyer to review the agreement and make the prerequisite inquiries, like viewing the property title and house plans to ensure you’ve signed up to buy what exists. When everything looks good, you will now pay the deposit, down payment, or percentage of the sales price – e.g., 5 or 10%.
7. Home Inspection
Ensure the agreement is subject to loan approval and a satisfactory building inspection. You don’t want nasty surprises like termites, water damage, and structural issues. If serious problems are found, you can pull out of the deal. Negotiate a lower purchase price or get the seller to agree to make repairs.
8. Get Insurance
Your loan provider will need to know your property purchase is insurable. If it’s not a condition for the loan, make it a state on the sales and purchase agreement. Building insurance is must-have for an investment property, and some products include rental payments if something happens to the property. Carefully review the terms of the insurance agreement.
9. Property Management
Engage a professional property manager who knows the law and can locate and manage your tenants and their use of your rental property. Their fee will need to be covered by the rental income, so include it when weighing up if the property will return a profit.
There are many obstacles to avoid and actions to take when becoming a real estate investor. These nine tips represent just a few you should know before you purchase your first rental property. Give yourself plenty of time to learn and prepare before leaping into profitable property investing to save for retirement.