Real estate investment is considered one of the most effective stepping stones when it comes to growing one’s wealth. Simply secure the title, develop the property into a commercial or residential space, and rent it out. You can also make the property more attractive by adding luxury amenities so that you can charge higher rent.
But while this has been done for decades, the factors that shape the real property investment market continue to evolve. This means that strategies that worked five years ago may not be as effective today.
From wholesaling and joint ventures to property management, there are plenty of ways investors can gain profit from real estate. However, this endeavour requires a bit of know-how if you are to succeed in such a competitive market.
And like other investments, real property investments are not 100%risk-free. Why else would some real estate investors fail while others become super rich?
To help you achieve the latter, here are four secrets of real property investment you should know before buying property for sale for the purpose of investing:
1. Know your target market
Successful real estate investors have several things in common, and one of them is that they have in-depth knowledge of their target market.
Like being in a product-focused business, you need to stay abreast of current market trends that cover consumer spending habits, unemployment rates, mortgage rates, and many others. This way, you can change your investment scheme accordingly not only to adapt to the present market scenario, but also to prepare for the future.
For example, many rental investors shy away from families living with children and pets because they fear premature wear and tear of the property. However, doing so could mean that you’ll be missing out on one of the biggest rental markets, not to mention a chance to keep your property in good hands.
Actually, families are often more responsible when it comes to keeping the house in good shape compared to other tenant groups. Plus, they are ready to pay for higher security deposits and are more likely to become long-term tenants.
2. Buy underpriced properties near desirable neighborhoods
Another secret that helped some investors succeed in building their wealth in real estate is that they chose the property they invested in wisely.
Real estate investment is more like investing in a dividend-paying stock in the sense that the ROI will be based on how low the price you paid for the investment is. However, this doesn’t necessarily mean that the cheapest properties will yield bigger profits, as some may not get you any money at all, especially if the house is in an unsafe area.
Instead, go for properties that are on the fringes of the desirable neighbourhoods. Rental properties situated along the edges of these communities are usually sold at half the cost or even less than the price of similar properties in bordering areas. However, they also typically rent for just about the same price.
If you do this, your investment property can potentially deliver a return that is double your initial investment (and in some cases, even more).
3.Think about the upfront costs
When it comes to real estate investment, understanding the costs upfront is your best bet at making a decision that will lead to your success. Of course, these costs are not limited to the amount you pay when buying the property. It also includes other costs, like realtor and property commissions.
In some cases, you might need to spend an additional sum for repairs and maintenance. For many newbies in the real estate investing business, this can be difficult to estimate accurately, be it fixing a cracked foundation or addressing infestations. Also, consider how much more you would shell out for updates and upgrades that could increase the value of your property, such as repainting a room or installing a decorative concrete floor.
Calculate the cost of having these things done professionally, as DIY-ing a remodel, as well as resolving electrical and plumbing issues, tend to cost more and may even lead to further issues that can leave your property unsellable (that is, of course, unless you have a background and sufficient credentials in performing these tasks).
4. Understand the risks and manage them well
Stock market investors are well-versed in the inherent risks involved in investing simply because they are inundated with warnings about it. But unlike them, real estate investors tend to see advertisements that claim the opposite.
While there are people who successfully become wealthy from such an investment, it’s not quite accurate to say that it is ‘easy to make money’ in real estate. In fact, there’s no such thing as a guaranteed, easy-money investment.
To avoid falling into a trap, you have to be prudent in understanding the risks that come with real estate investment. From real estate deals to legal implications, you must adjust your business to adapt and reduce the impact of those risks.
To do so, you must first avoid getting too deeply into debt. This means that when you buy property for investment, aim for at least a 10% down payment. If possible, go for 20% to eliminate the need for private mortgage insurance and to get a lower loan interest rate.
Next, you should keep a large amount of cash on reserve. This way, you can reduce the risk of having to sell the property quickly but at a loss.
If you’re investing in rental property, you need to prepare for two of the most expensive problems rental property investors face: unpaid rent and property damage. You can prepare for these two risks by increasing your security deposit. Doing this can also help you attract more qualified tenants who are willing to pay more for a good home.
Invest wisely for a profit
Like all other kinds of investments, real estate investing can be quite tricky if you don’t know the inner workings of the trade. Make sure you understand how things work using the insider secrets presented in this article and secure your chances of earning a significant return.