Everyone knows real estate is a good investment.when investing in real estate, the goal is to put money to work today and allow it to increase so that you have more money in the future. There are things you can do to put yourself on the right path and ensure your best chances for success. But real estate investing is more complicated than investing in stocks because of the financial, legal, and extensive due diligence requirements involved.
When deciding how to invest in real estate, you want to first outline your investment strategy, goals and budget, as well as the area where you want to invest. These will help you choose which types of real estate investments are right for you. Real estate investing really can be as conceptually simple as playing monopoly when you understand the basic factors of the investment, economics, and risk. To win, you buy properties, avoid bankruptcy.
The location is everything when investing in real estate is so cliched that this idiom often isn’t fully understood. Before you fork over a down payment and put yourself in a significant amount of debt over a property, ensure that it’s in a good location. The value of a property is directly proportional to the convenience it affords the person who lives on it, whether that be you or a tenant. Look for the worst house on the best street. That’s a principle you’ll come across quite a bit as you delve into further real estate investing advice.
You want to invest in the worst house on the best street because it gives you an opportunity to build equity. It’s a property in a great neighborhood that needs some work. You can invest some money to fix it up and sell it to someone else who wants a ready-to-move-in house in a fabulous location. Professional real estate investors call this “fixing and flipping.”Convenience is not necessarily a synonym for proximity. And, convenience does not necessarily pertain to access to supermarkets, movie theaters and schools. A property could be convenient if it is isolated or because it provides access to open space or public lands.
If you’re planning on buying a property that you’ll rent out one or more tenants, use the “1% Rule” when you decide whether or not the property is worth the price you’ll pay for it. A property used as a rental should generate at least one percent of the purchase price each month. This means a rental property should produce a return on investment (ROI) in 10 years or less, and that includes the interest on a loan. If you aren’t going to see an ROI within a decade, the real estate investment is not a wise one.
The one percent rule can provide a baseline for establishing the level of rent that commercial property owners charge on real estate space. This rent level can apply to all types of tenants in both residential and commercial real estate properties. The one exception is equity. If, for some reason, you are convinced that the equity of a property will grow at a rate equivalent to one percent monthly for a decade. The 1% Rule simply states that an income producing property must produce 1% of the price you pay for it every month.
Look for Wholesale Properties
Wholesale is based on buying and selling properties very quickly without making any repairs. If you’re a savvy stock market investor, you probably won’t buy too many stocks at their high if you plan on holding them for a long time. The wholesaler sells the houses to investors who can pay with cash or cash-like loans because there is no time to get a loan and there are no inspections or appraisals.
The wholesaler does not need to use their own money because they use what is known as a double close or an assignment of contract. Instead, you’ll follow the Warren Buffet principle of getting greedy when everyone else gets fearful. You’ll buy stocks that are beaten down and make a fortune when they turn around. Avoid paying “full price” for properties. Instead, look for so-called wholesale properties that are offered at a steep discount. Sure, they’ll probably need some work. Run the numbers and see if the investment in rehab is worth the ultimate selling price.
Understand the Tax Benefits
When understanding for taxes, property owners have the right to fill out a Schedule E form, the means by which real estate owners apply for a tax write-off. The people who run our government want private investors to provide housing for people. That’s because they know that if private investors don’t provide housing, then the government will be responsible for it.
The most significant benefit, arguably, is the depreciation write-off. When you buy an investment property that includes a building, you get to write off the depreciation of that building as a tax deduction. You’ll have to consult your tax advisor for specifics, but basically, you can expect to depreciate a residential building over 27 years and a commercial building over 39 and a half years.
Check Your Credit Report
Before you consider a properties investment. if you are going to require a loan to make it check your credit report. If you have problems on your credit report that are mistakes, get those resolved as quickly as possible. If you have problems that are legitimate, then you’ll need to work to improve your credit. Your credit score will not only determine if you can get a loan, but it will also determine at what interest rate. Once you know what your score is, start shopping for a lender. Simply put, banks aren’t going to loan money to you for a property that’s not your primary residence as readily as they’ll loan it to you for your own home. Especially if you have a poor credit score, it is critical that you are patient when looking for the right lender. With respect to interest rates, even a difference of one percent can amount to a large sum over the term of a loan.