Getting your first investment property means stepping out into new territory. It can be the most intimidating step in the journey if you're not prepared. Where do you look and how? Knowing how to invest in property requires a few basic skills, such as identifying potential profitability and getting the necessary funding.
Large investment firms aren't the only ones interested in real estate. According to recent BatchData reports, around 33% of single-family homes were purchased by investors. In addition, approximately 87% were small mom-and-pop landlords with only one to five homes. There's room in the market for new investors, even if it feels intimidating at first.
A single-family residential building is one of the best options for your first investment property. It requires less maintenance and offers the potential for higher appreciation.
You can also live in one unit of a multi-unit building while renting out the rest. This offers more income but requires more maintenance. A condo is another option for multiple income streams with less maintenance, but there may be fees. Amerisave says they can reach $300-400 per month.
One of the best beginner real estate tips is to identify your goals before you even begin looking for a property. Focus on areas with high rental demand if rental income is your priority. Look for high appreciation if that's your focus. Decide how much you're willing to invest, especially for the down payment.
You can begin your investment property search through traditional methods, such as looking at newspaper ads or driving around the neighborhood looking for available properties. However, this can be a waste of time if you don't find anything or fall in love with a lemon of a building.
Using professional property tools, such as The Investor's Edge Next Property Roadmap, makes it easier. It'll be your property investment guide. It covers all the steps necessary to find your next best deal.
When you've identified a property you're interested in, one of the most important steps in real estate investing is to determine its profitability by calculating cash flow. Identify the rent for comparable properties. Subtract monthly expenses from that, such as:
Another important figure to get is the return on investment (ROI). You can determine that by dividing cash flow by your investment, including the mortgage and the down payment.
The higher these numbers are, the better your investment will pay off.
Location is also important. Find a property in an area with high demand due to factors such as:
Any first-time investor guide should also cover how to invest with limited capital. There are several options, from buy-and-hold to REITs, and finding the best one for you is an important part of the investment journey.
Buy-and-hold goes by many names, but they all involve buying a property and not renting it out right away. This is also known as househacking. A turn-key buy-and-hold property may need minimal renovations.
It's an effective, low-risk strategy for beginners to invest in property. You have a place to live and are more likely to get a profit by waiting.
Fix-and-flip is also a common investment strategy. It involves buying a house that needs renovations and selling it for a profit.
If you're handy or have a talented construction crew, this can be a profitable strategy because you can buy cheap houses to flip. You can also use a hard-money lender to obtain the required financing.
A REIT, or real estate investment trust, is the solution for you if you're a beginner looking to invest in property without the headache of daily maintenance.
The actual property is owned by companies that buy and manage real estate. You purchase a share of it. This can be an easy strategy for beginners. You don't have to worry if you aren't used to managing or negotiating property sales because the owner takes care of that.
There are several common real estate investment mistakes that even experts can fall into. Knowing about them as a beginner can help protect you.
Overvaluing a property is one issue. It's easy to get overattached to your first potential purchase or put the sales price up too high in an effort to break even. Don't forget to look at the actual data to see what the property is actually worth.
It's also common to underestimate costs, such as:
It's especially common to underestimate the cost of any necessary repairs on fix-and-flip jobs. Get detailed estimates and leave a cushion in your budget for emergencies.
Another common issue is low occupancy. This can be caused by issues such as poor location, but you also have to continually improve and market the property. This number varies. According to the US Census, the average vacancy rate for rental homes is approximately 7.2%. The rate at your property shouldn't ever exceed 25% in a year.
Any amount of money is technically enough to get started in real estate investment. However, $5,000 isn't enough to buy an investment property outright.
Fill in the rest of the money you need with funding options such as:
Spotting your first investment property starts with determining your goals and desired property type. Use all available data to ensure it provides the returns you're hoping for.
The Investor's Edge is more than a real estate investment platform. We offer funding, but we also provide education to help you spot the right property for you and learn how to manage it. Our goal is to help those who are brand new to the investment process get the best possible results.
Contact us to start learning how to invest in property and find your first great deal today.