The Key to Getting Started in Real Estate Investing (Know Your Risks)
The key to getting started in real estate investing is to determine a location in which to invest by determining the potential for real estate investment in a specific area. Read our primer below to find out more information, or fill out our contact form below to speak to a counselor or real estate agent that specializes in your area today.
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If you are thinking of investing in a location, this is a question that you must ask yourself. To help you analyze the viability of your location for real estate investment, we have provided the following investment real estate advice.
1. Speculating versus investing
Buying a chunk of land and hoping that it goes up in value is a poor, speculative investment. Conversely, buying a property by researching the potential reciprocal income from rent, and then investing based upon a detailed cost analysis an example of an educated investment. The line between speculative and and informed investing is a blurry one. No one can predict the future. The obvious rule of thumb here is to gather as much information as possible through as many mediums as possible. Talk to investors and agents, contact developers if necessary, do Internet and print research, and contact anyone that can provide you with more insight into your investment.
2. Property will always go up in value
Don't believe this dangerous myth! Property prices in Japan have fallen by 75% over the last decade. Stock prices also fluctuate substantially over time. As a sum average, properties do go up in value. The trick is to find properties that are appreciating in value rapidly.
First, make sure that the investment makes sense from a positive cash flow perspective. If the property falls in value, you're still 'right side up' on your cash flow. Always be sure to give yourself 5% to 7% ‘padding’ in your investment. You don't want razor thin profit margins, as the money out will not make up for time and efforts invested.
Conversely, consider any major appreciation to be icing on the cake when it comes to educated real estate investing. Do not always anticipate an enormous return on your investment, this could spoil the large scheme of a planned investment strategy.
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3. Getting started in real estate investing with residential property
Residential property is easier to understand, purchase, and manage than other types of investments. If you're a homeowner, you already experience. Law and tax concerns are similar form state to state, and a good real estate brokerage can aid your understanding of local laws and regulations. You may want to start close to home to make managing properties easier.
4. Truthful real estate investment advice: Don't believe everything you hear or read.
Sellers and real estate agents ultimately want you to buy their property. So what they are telling you is most likely biased advice. If the property has been a rental, ask the seller for his Schedule E form from his taxes. Also don’t forget to check for any leans through a title service. The last thing that you want is to be legally stuck with is a previous owner's problems. This way you can be more confident in your investment.
It will show the owner's actual revenue and expenses; or at least the earnings that have been reported to the government. What you can expect to earn is somewhere between what is reported to the IRS and what the current owner is promising you.
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