Real estate is without a doubt one of the most solid investments you can make.
However, before you delve into what is potentially one of the most profitable ventures of your life, it is natural to have a few questions.
To successfully invest in real estate, you will need to have the prerequisite knowledge about how to go about it. Here is are seven real estate investing basics you should know.
1. Location Is Critical
When you are about to invest in real estate the location of the property is always of utmost importance. Ask about the neighborhood; find out if people stay in the neighborhood for long periods or if people are constantly moving out.
In fact, you may be surprised that it doesn’t matter too much if you buy a house that needs a bit of fixing up as long as it is in a good neighborhood.
A good neighborhood is your guarantee that you will have a solid return on your investment. Once the neighborhood is solid you can market and sell a house quite easily to someone who will pay you handsomely for it.
2. Real Estate Investing Basics For Wholesale Properties
When it comes time to investing in real estate, you want to make sure that you get the lowest price possible. This means that you should only buy properties that are being sold at a steep discount (wholesale properties).
Wholesale properties will often need a lot of fixing up, so crunch the numbers and see how much it will cost you to buy, fix and sell.
If you are coming up with some pretty good projections, then it is time to jump in and make a deal before someone else does.
3. How Much Can You Spend?
In order to invest, you are going to need money. However, to get approved for loans from banks and other approved lending agencies you will need to show them your credit report.
In general, it is a bit harder to get a loan for a property on which you don’t live as opposed to getting a loan for a property on which you do live. That’s why you need a good credit history. You can get a free credit report online to start with.
If you have a checkered credit history it will need to be fixed before traditional lending agencies will consider loaning you money.
However, there are still loans you can get without having the perfect credit history but one loan may not be enough to finance your project and you may have to get multiple loans of this kind.
4. Avoid Unmotivated Sellers
You may find a property that you think would be perfect for your goals, however it has been on the market at the same price for some time.
This usually means the seller is not very motivated to let go of the property.
Look for properties that have prices that have moved down considerably. This tells you that the owner is interested in selling and also in negotiating. This means there is a good chance you can get a deal that is likely to be in line with your financial goals.
5. Get One Percent Rental Income
If you are interested in buying a property in order to rent it, one of the best things you can do is to make sure that you will get at least one percent of what you have invested back every month.
So pull out your calculator and put in your projected rental price for the property.
Find one percent of the rental price and see if you can make that amount in rental income per month. If you can comfortably make that and even a bit more, then the property is worth investing in.
6. Let’s Talk Taxes
The government is all for private investors selling houses to citizens. This takes a significant amount of weight off their shoulders for providing housing.
That is why there are a lot of tax benefits attached to investing in real estate. One of the best benefits is a depreciation write-off.
Whenever you buy a house you can write off the depreciated value of the building as a tax deduction. You can expect to enjoy these deductions for at least three decades whether you buy a residential or commercial building
The government also tends to view real estate investment as a business so you get to claim the deductions that business owners are privy to.
7. Hesitation Can Be Detrimental
When you start investing it can be easy to get nervous when it comes time to actually close a deal. It is not uncommon for investors to start thinking that something better is just around the corner.
Sometimes this is true but often times it isn’t. When investing in real estate, you must have clearly-defined criteria by which you choose a property for investment.
Once at least three-quarters of the criteria is met, you should go ahead and make an investment in the property.
Hesitating to make a deal when you have most of your criteria met can cause you to lose a potentially lucrative investment. Just remember that nothing will ever be perfect but often deals come very close to perfection and that is all you need to take the plunge.
Real estate investing basics are not difficult to learn and once you master them you can expect to enjoy significant financial benefits.
The keys are getting your finances in order and making sure you choose a property that is going to give you a good return on your investment. You also want to make sure that whatever property you buy will be able to get you some good tax deductions.
Once you have these areas covered you are ready to become a real estate investor.
If you would like more real estate investment advice, explore our blog.