Any astute investor knows that investing in real estate can be quite rewarding. But just like any other investment opportunity, it also comes with its own set of risks. Awareness of these risks is the first step to smart investing.
With these 6 basic principles of real estate investment, you can cut potential losses and enjoy your profits:
Set emotions aside
Relegate emotions to your favorite TV dramas, not to investing in real estate. Deal with the fact that this is a business matter that requires logical thinking. Use this mindset in negotiating for the best price. You may just be selling lower now but you will most likely get higher returns at resale.
The wonders of research
If you clearly know who your target clients are at resale, you’ll know exactly the kind of property to put your money in. That’s why you need to research. Consider the location of the property and its chances of attracting the clients you are targeting. Once again, logic plays a large role here to put you in the proper frame of mind in selecting an investment property with high income potential. It’s all about economics, after all – not personal preferences.
Expect higher down payments
Here’s something to keep in mind: you cannot get mortgage insurance if you’re buying investment property. Because of that, you will need to put up a 20%, not 3%, down payment for an investment property. On top of that, you also have to comply with more stringent requirements for approval. Moreover, you have to factor in renovation expenses prior to purchase. And speaking of purchases…
Do the math
How do you make sure your head will be above water in making a real estate investment? By doing the math and seeing how much money will come in and go out. First, see how much money you have on hand and how much you may need to borrow for this endeavor. Then, determine the renovation costs and maintenance fees. Lastly, set your selling price. Deduct the first two sets of costs from your selling price and you will have a general idea of the profit you will make from the property. It’s a rough estimate, but at least it shows you in advance what to expect from your investment.
First-time investor? Go low
Inasmuch as you may be ready to make a million-dollar investment, consider a lower price range for your first investment. Safe choices would be properties priced below $150,000. That way, you would be able to budget the operation and renovation expenses adeptly. Besides, it’s also a way of buffering yourself from costly losses in case profits don’t come in as enthusiastically as expected.
Friends as business partners
It is not uncommon for friends to go into business together, especially when engaging in any business endeavor for the first time. Then again, being friends with somebody does not automatically mean they will make a good business partner. Ask yourself just how comfortable you really feel about managing a business with your friend and whether or not they are likely to fulfill their part of the deal.
Real estate investment is a sound decision you can make to improve your financial portfolio. If you’re ready to take the plunge into this opportunity, consider us as your trusted partner. We’re The Noel Team, and you can reach us at 303.774.9400 or via email at sjnoel@remax.net.
