Thinking of dipping your toes in real estate investing? While it’s extremely profitable, there’s plenty of risk involved in the process as well. Put yourself above the competition with these 10 tips you should consider before entering the competitive world of real estate investing.
A little risk is necessary
Real estate investing is a high-risk world, but that doesn’t mean you should play things safe. If you’re a competitive risk-taker, the high-stakes real estate investing markets might be right for you. However, real estate investing offers many different avenues, and there are plenty of low-risk investment opportunities for those more passive in nature—although, you shouldn’t expect the same rewards.
Know your budget
There’s a lot to consider when determining your price range, including your annual income, saved up money, any debt you’re already handling, your credit score, and more. After you’ve closed on an investment property, substantial funds will still be required to turn a profit. Be sure to factor that into your budget from the beginning. If you can’t afford an investment property at the moment, don’t worry! There are plenty of low-risk opportunities out there.
Consider low-risk opportunities
While some might want to dive in head first, it might be a more practical choice to start small. For instance, simply renting out a room is a great way to slowly dip your toes into the rental industry.
Alternatively, investment funds, exchange-traded funds, and mutual funds are good places to start investing if you aren’t quite ready to rent out a room. These typically have less return on investment as, for instance, home flipping, but there’s also less risk of losing big.
Think you can handle high-risk opportunities?
Where there’s high risk, there’s high reward. While there’s a lot of money to be gained in an investment property, there’s a heavy toll to pay in the beginning. Flipping a home usually comes with the highest initial price tag. In addition, homes to be flipped and rental properties require 20-35% down payments, whereas owner-occupied properties usually only required 3-5% down.
While these sorts of properties demand the most in initial investments, you can expect to make a lot of money down the road… as long as you know what you’re doing.
Ideal market conditions: flipping vs renting
A profitable investment market needs to be growing—not stagnant. New construction, job growth, and population growth are all indicators of a growing economy. If you’re looking for a house to flip, don’t wait too long or move too early. If you enter the market too late, you could end up paying more for your property than it will sell for. If you enter too early, you might be hard pressed to find a buyer once the home has been flipped.
When it comes to investing in rental properties, you’ll still want a growing market. However, finding a rental property in a stable neighborhood with low rental inventory, good schools, and long-term prospective tenants is key. Look for cities with growing economies and high numbers of tenants looking to move.
The right time to buy & the right time to sell
If you want your home sold quickly, spring and summer are great times to enter the market. There’s a natural surge in buyer demand, so you’ll have plenty of traction on your home. But with more buyers in the market comes more sellers looking to take advantage. You’ll have to compete against a lot more homes than you would in the colder months. But don’t worry, as there are many things you can do to stand out in this intense market.
The colder months bring lower buyer foot traffic and interest. But those who are searching for a home in the winter will be much more motivated to put down an offer. This doesn’t mean you should overprice your home or expect a higher offer, but you should take every showing seriously. Make sure each person who views your home in the winter sees it at it’s very best, as those willing to trek through the snow, sleet, and ice will be serious about putting down an offer.
Selling your investment property despite the season
If you have to sell in the off season, don’t worry. Rain or shine, the real estate markets won’t die. There are three main tips you’ll need to follow in order to sell your home profitably no matter the season. First, make sure the home is priced correctly. This a huge mistake sellers make and could actually lead to extremely low offers. Second, market the home to the best of your ability by working with a real estate agent. And last, always make sure your home is in good condition, clean, and visibly appealing.
Invest the time
Real estate investing can be as hands-on as you want it to be, but high returns will require more time spent on tasks like home flipping, managing contractors, chasing down tenant payments, ect. If you don’t have the time or don’t want to take the risk, online investing might be a better option. Take into consideration your other commitments and responsibilities before choosing what investment process is best for you. There’s plenty of room for major gains in the real estate investing world, so get ready to dive in!