Despite the numerous examples of people who have made a fortune through real estate investment, real estate carries several hazards like any other investment. Moreover, irrespective of the type of property you purchase or whether you intend to rent or sell it later, you would need a significant amount of money for this form of investment. Therefore, you must be sure you’re doing it the right way. This article discusses some basic things you should know before investing in real estate.
- Carefully select your partners
Many people prefer going into a real estate investment with a partner. Although this can help reduce the cost involved, it also plays a vital role in the success of your investment. When choosing partners, first-time investors must examine various aspects, including how comfortable you are with them and the terms and conditions of your partnership agreement. This way, you can avoid making toxic partnerships and avoid expensive disagreements.
- Set up money for a down payment
Unlike the 3% down payment on your present home, you will need at least a 20% down payment on your first investment property. This is because investment properties are not eligible for mortgage insurance. Furthermore, investment properties have higher down payments and stricter approval procedures than conventional buildings. Before you pay your down payment, keep in mind the renovation costs.
- Make a forecast of your expenses
When it comes to investments, it is often said that only the paranoid survive. It’s not a bad idea to be a little neurotic and plan ahead of time. Determine how much money you already have and how much you can borrow before purchasing your first investment property. Figure out how much it would cost to buy and renovate the house after that. Then, figure out how much you’ll sell your house for and remove the costs to estimate how much money you’ll make. You might not even make half of the predicted profit, but this calculation is important to stay in the safe zone.
- Choose a low-cost residence as your initial investment property
Houses in the lower to mid-range price ranges are always a good choice, even if you’re willing to pay up to a million dollars for your first investment property. Some experts recommend a house that costs less than $150,000. You will have to invest more money in renovations before renting or selling the residence. Also, as this is your first investment property, you’ll want to make your investment as modest as feasible. If you don’t generate the projected earnings, you won’t lose much money.
- Conduct adequate research
When you want to buy your first investment property, research the types of clients you’re looking for. Ensure the property is in a location that will attract the clients you want to sell or rent to, provide the expected returns, and appeal to the market. You may seek advice from experienced expert real estate agents from reputable companies like Madison Fox.
