Real estate investment can be an exciting and profitable endeavor. There are many stategies to consider, plus unique risks to think about. Before taking the plunge for the first time, here are some tips to keep in mind to make sure you make the most of your property investments.
- Decide on the type of property you want to buy.
You have several entry points to the property market. Pick one to focus on and do not stretch yourself too thin right at the get go. Consider your needs, too. If you are busy, look into real estate investment trusts or REITs to earn a dividend income while leaving the property-operating and maintenance responsibilities to the trust.
- Pay off personal debt first.
Experienced investors can carry debt as a part of their portfolio investment strategy but it is wiser for beginner investors to clear personal debt first before investing in property. However, it will not be necessary if you have calculated the return from your real estate is greater than the cost of debt.
- Pick the right location.
Choose an area that is stable or improving. Avoid spots that are on the decline, whether in cities or rural areas. It does not matter what kind of property you are investing in – this is true for all types of investment. Location is the key to property appreciation and depreciation so choose a place with good value.
- Decide whether you are buying in cash or financing your investment.
If you have the money, you can buy a property in cash and start generating positive monthly cash flow immediately. Otherwise, financing a property is an option. Just beware of high-interest rates. Rates on investment properties tend to be higher than traditional mortgages.
- Calculate your margins.
There are plenty of costs to consider outside of your expenses including homeowners insurance, association fees, property taxes, monthly expenses, and general maintenance costs. Generally, you want to generate at least 2% income of the purchase price of your property investment to generate a positive cash flow.