With real estate investment comes an abundance of benefits. Not only is the property market growing exponentially but real estate is one area of investment that can always guarantee a profit. House prices and building values are always increasing due to demand, a growing population, and evolving economy.
Investors can enjoy predictable cash flow, excellent returns, tax advantages, and diversification—and it’s possible to leverage real estate to build wealth. Want to find out how to maximize your investments in real estate? Let’s take a look.
Choose Your Market Wisely
Let’s say you are looking to make a huge profit from your large bank of savings. You may want to think about investing in luxury real estate, as here, there is the most money due to the property value being so high.
To become successful in real estate investment, your focus should also be on the location of the property within the market. You need to invest in those neighborhoods which have high population density, are developing, and have all basic amenities nearby.
Avoid any area that is dependent on one economic driver such as the tourism or auto industry. Detroit is one such example of a market whose economy was heavily driven by the auto industry. When its auto industry failed, it led to a drastic decline in home values. All the rentals went vacant as no one able to find work. Fewer jobs in the city eventually resulted in fewer people able to live there. There were more houses than people who want them, so the law of supply-and-demand drove prices down.
Understand The Costs
If you are just getting started in investing in real estate, you may want to go safe and use your savings to invest in a few varieties of real estate. For example, you may want to invest in residential homes in affordable areas as well as new buildings in a wealthy area. Do what’s right for you and always ensure you understand the market you are investing in before handing over your money.
It is also crucial to understand your costs upfront. It isn’t just the cost of the property and realtor commissions. You’ll need to pay for repairs, and too many newcomers to real estate investing don’t know how to accurately estimate costs to repair that cracked foundation, fix electrical problems and address pest infestations.
Don’t think you can solve the problem by working on weekends to add a little paint. Most DIY work detracts from the value of the home, and trying to fix someone’s electrical and plumbing issues yourself may make it unsellable unless you’re already capable of doing work like this to code. Others fail to budget for closing costs, insurance, or utility costs and end up losing money on a deal.
Assess The Potential Risks
There are several ways in which you can manage risk in a real estate investment. First, don’t go deeply into debt. When buying an investment property for sale, aim to put at least 10% down. Twenty percent is better since it eliminates private mortgage insurance and often yields a lower interest rate on the loan as well. Second, maintain a large cash reserve. You’ll reduce the risk of having to sell a property fast at a loss if you have the cash to carry the property long before it needs to move.
By having a larger cash reserve, you’ll also be able to pay for unexpected repair bills before you can put a property on the market. Running to a hard money lender to get the last $20,000 to fix a property is possible, but it comes with a high-interest rate that eats into your profit margin. Managing risks in the right manner can significantly improve your chances of becoming successful in real estate investment.
Don’t buy a property for which the math looks bad because you’re afraid you’ll lose out on the deal. Never fall in love with an investment property. You’re not going to live there – someone else will. Be aware of your risk tolerance. Then take action to manage the risk, whether you’re avoiding the fixer-upper you’re afraid will be a money hole or improving your cash position before you buy it. If you can’t handle the potential stresses of fix and flip, buy ready properties instead.
Consider Unpopular Real Estate Properties
Remember that real estate investing doesn’t have to equal a choice between investing in single-family homes and apartment buildings. You could invest in office buildings, storage unit complexes, industrial space, and warehouses. All of these generate rental income. In the case of offices and industrial buildings, you may be able to reduce overall costs with a triple-net lease where the tenant covers basic insurance and pays the property taxes and maintenance. Your investment then yields steady cash flow with few out-of-pocket expenses.
Only Accept Online Payments From Renters
You will not want to come unstuck if the property you are renting out isn’t paid for on time by the renters. Have your tenants pay rent online and stop wasting time depositing checks and tracking down rent checks.
A smart investor values their time as much as their other assets. You can streamline your rental management by taking advantage of software solutions designed for renters. One of the newest and greatest technologies hitting the rental market is the ability to make online rent payments.
Online rent payments make rent collection easier for you and are beneficial for your renters too. Often, your tenants’ rent check is the biggest bill they pay each month, and physically writing out a check can be an emotional experience. Paying bills online, especially via automatic payment systems, can significantly lower the emotional stress associated with paying big bills. Plus, anyone who pays a bill with auto pay is less likely to pay late, incur late fees, or miss a payment.
Regarding auto payments, make sure all your bills are set up for auto pay as well. Sometimes you can negotiate a discount for paying your bills via online services, which will cut down on your operating expenses and increase your bottom line.