5 Things To Know When Investing In Real Estate

We all know that real estate investing is a great way to build wealth. After you buy a home, other homes in the area tend to follow suit and increase their values as well. In addition, as you make improvements on your home or purchase new properties, those too will appreciate over time. As an added bonus, those monthly payments really start to add up.

But, not all real estate is created equal. Some properties are better investments than others, especially in this day and age of low interest rates and an ever-increasing inventory of homes. Here are five things you should know before investing in real estate: 

1) Understand the market


 

When it comes to making money on your real estate investments, it's important to understand the market and what makes an investment good or bad. For those looking for a quick flip with low risk, look no further than foreclosures and short sales. However, buying these types of homes is not as straightforward as you might think. If you decide on this route, be sure that you work with a real estate agent who is experienced in these matters.

Make sure you do your research and understand what state the market is in within your area. If you're interested in rental properties, be sure to see which areas are growing and if there is a demand for additional housing units. This will help you make informed decisions with your investments. 

While it's important to understand the market, you should also understand your strengths and weaknesses as an investor. For example, if you are strapped for cash but very good at finding deals, then purchasing turnkey properties might be right up your alley. On the other hand, if you're looking for a passive investment where the profits continue to roll in while you sit back and enjoy life, it might be smarter to choose something like a high-yield master limited partnership.

2) How long do you plan on staying?


 

Before investing in any property, it's important to know how long you plan on keeping the investment for. Are you attempting to flip this property quickly and move onto the next one? Or are you looking for something that will provide cash flow for the long run. If you're looking to make a big return on your investment by selling soon, then choose an area that is popular with buyers who are in need of homes right now. Unfortunately, many people have adopted this strategy during the last decade and have found themselves underwater when trying to sell.

Whether you're looking for a rental property or are hoping to flip the home, it's important to understand what you're getting into. While real estate can provide great returns quickly, that doesn't necessarily mean that it will be easy. If you're looking for low maintenance and hassle-free investments, choose something that is already rented out with tenants paying rent on time each month.

Stress when selling

Another thing to keep in mind is if you intend to live on the premise yourself. If you are looking for low maintenance, an apartment complex or a house that is currently being rented might be the right choice. But, if you want to move into the home yourself and become a landlord, then it might be worth the extra time and money that is required.

If you're like most people, you probably want your real estate investments to provide some type of immediate return for your efforts. While the longer you hold onto the investment, the better it is for your bank account, most people are looking to make their money back fast. If this sounds like you, then flipping real estate just might be the right choice.

If you're new to the world of investing or have had poor success in the past, flipping might not be for you. Instead, consider choosing something like master limited partnerships or other options that require minimal effort on your part but will continue to provide cash flow over the years.

Real estate photo

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3) Don't just look at appreciation


 

Although it's nice to see the home you purchased a decade ago has now returned to its original value, it doesn't exactly put money in your pocket. Sure, you'll have some extra cash on hand if and when you sell but what good is that going to do if you need to be making those monthly mortgage payments? In order to make money on your home, you need to look at appreciation and cash flow.

You want to be able to understand all the costs. Most people think that when they invest in real estate, all their extra expenses will be covered by rent. However, that won't necessarily be the case if the unit is vacant for a month or two. Look at all of your projected expenses before finding an investment property in order to see what kind of return you're really getting on your hard earned money.

If possible, you could try renting out part of the home and living in another room. This will allow you to cover the mortgage (or rent) on the property without losing money. Before you make an offer on a home, be sure to speak with your real estate agent about what kind of opportunities are available in that particular market.

Basement Rental

On top of calculating and understanding all the involved costs, you need to be sure you have enough for a downpayment. If you don't, be sure to talk with your bank before making an offer. You may be able to get a loan or line of credit depending on your income and other financial obligations you have at the time. Having the cash upfront will help ensure that you're not stuck in the investment if something goes wrong.

While it is possible to purchase real estate with little money down, it's important to know the advantages and disadvantages of this method. Just because you might have enough money to buy a house with no down payment, doesn't mean that you should. Something to keep in mind is the associated costs like homeowners insurance and property taxes which will be higher for homes bought without putting any money down. They can quickly eat into your profits if you're not careful with what you sign.

4) Keep it simple


 

When it comes to real estate investing success, simpler is better. Don't get caught up in the hype of flipping homes for a quick buck or buying properties that take months and even years just to see a profit. Unless you can afford to tie up your money in homes for a long period of time, stick with something simple that cash flows now.

There are plenty of investments out there that will provide strong returns with little to no work. Take, for example, high-yield master limited partnerships. These are typically oil and gas infrastructure companies that have agreed to pay their partners a portion of the profits in the form of dividends. The best part about these investments is that if you buy into a company when it first goes public, you can immediately start receiving dividends.

After taking a look at appreciation rates in the area, find out what kind of return you'll see monthly on your investment. Choose an area that is growing quickly but has low rental costs in order to maximize your return. Don't automatically rule out buying properties that are already rented as you can still make money on those as well.

5) Know the timeline


 

Before you invest in any home or property, be sure to know all of the requirements involved with buying. For instance, are there renovation costs required before you can move forward with closing? What are the permits you need and how much will they cost? If there is a loan involved, when do the initial payments need to be made and what happens if things aren't paid on time? It's important that you know all of these details beforehand so that you don't get caught off guard.

There's no such thing as overnight success when it comes to real estate investing. If this was the case, everyone would be a millionaire by now. In order to build your wealth from home, start small and work your way up. That way, even if you only have a few hundred dollars to invest initially, you'll still be able to place that money into a property and start seeing your return.

Starting With a Small Apartment

Another thing to keep in mind is not to take on too much at once. Start with just one property and go from there. Don't be tempted to take on a second deal before you can successfully manage the first one. There's no point in spending money and time on a home that will ultimately fail and cause you to lose everything.

Don't think of investments as short-term cash flow machines but rather long-term opportunities. That way, you can potentially make years worth of income from a single deal and ultimately find success without having to always be involved with the day-to-day operations of your rentals. The more hands-off you are, the better.

The beauty about real estate investing is that it isn't one-size fits all and there's always room for growth. If one strategy isn't working, try something new or take a break and come back to it later on. While it's true that you should never get complacent in anything you do, know when to cut your losses and move onto something else.

These five things that you should know before investing in real estate are just the tip of the iceberg. Investing is a major decision and you need to be fully prepared in order to succeed. By doing your homework and understanding all of the ins and outs of this market, you'll be well on your way to becoming a successful investor.

Each and every day Modern Realty Guam Team strive to create confident buyers and sellers, and to offer world class service anchored by our experience and our unrelenting pursuit of excellence. Our fresh and responsive approach to real estate enables our clients to enjoy a higher level of customer service through talented agents, team-based systems, and cutting edge technology.

A local Guam real estate agent is ready to help you find your next investment property!

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