When done properly, real estate investing can bring quite a high return, especially when compared to other asset classes, such as investing in the stock market. You have the potential to make a substantial profit. Plus, it’s a great way to add some diversity to your portfolio. But there are certain risks that come along with investing in real estate. It’s important to know what you’re getting into before you start putting money on the line. Real estate investing isn’t always straightforward. In fact, most successful real estate investors travel a winding road filled with ups and downs before they become successful.
So what do you need to know when it comes to real estate investing? What best practices can you follow to ensure the best possible chance for success? We’ve compiled a complete guide for real estate investors looking to make a substantial profit with minimal risks involved. Let’s start with a few tips for real estate investing:
1. Focus on up-and-coming neighborhoods:
When you focus on up-and-coming neighborhoods, you’re able to maximize your profits, and more often than not, find growth potential and tax incentives available for buyers. Check out our community in the spotlight initiative to find some of the best neighborhoods around.
2. Avoid going high-end with improvements and/or décor:
If you’re working on a high-end house, it’s nice to have high-end improvements and/or décor, including countertops, fixtures, and other elements. But keep in mind, you don’t need to go high-end all the time. If you’re working on a low-to-mid-end house, feel free to go with what matches the house. It’s fine to budget appropriately.
3. Diversify your investments whenever possible:
While it’s great to start investing in a small geographic area, you’ll want to diversify your investments eventually. Start looking at other states and cities. This will protect your portfolio against the volatility of the market you’re currently in. Plus, a larger amount of investments ranging in location gives you better opportunities in the long run.
4. Take care of maintenance issues immediately:
When you have renters, you want to make sure you’re taking care of any sort of maintenance issues immediately – before they start costing you too much money. It’s helpful to have an annual or bi-annual walkthrough in your lease agreements. This allows you to inspect any potential damages before they become huge problems.
5. Get involved in a local networking group:
Most locations have some sort of local networking group for real estate investing. Join as many as you’re able to participate in. You’ll gain knowledge that’s invaluable when it comes to investing in properties. Meetup is a great resource for real estate investing groups.
6. Stay informed on markets you’re investing in:
This goes without saying, but it’s perhaps the most critical part of investing in real estate. Learn about your selected markets. Stay informed on all current trends, including the average rent, income, unemployment/crime rates, and other important factors that will help you stay prepared for the future.
7. Expect to go over your budget:
Always set aside approximately 50% of your budget on top of what you’re already saving. This will come in handy if anything unexpected happens and you need to spend extra. While you’re at it, expect to go over any expected timeline you’ve set. Unfortunately, minor issues can snowball into more time-consuming, expensive projects.
8. Hire a property manager when necessary:
You might be able to manage all aspects of your real estate investments at the beginning, but as time goes on and you purchase more properties, you’ll likely find yourself needing to outsource a few tasks. One of the best ways to handle a heavy workload is outsourcing to a property manager. This should be factored into costs before you start purchasing more properties.
9. Always have an exit strategy:
When you’re purchasing a property, make sure you have an exit strategy of some sort. For example, if you’re planning on flipping a home, make sure that home would give you a good enough source of income in the event you need to rent it out. Otherwise, you’re at risk of losing tons of money if the market tanks.
10. Treat real estate investing as a business:
Many real estate investors forget this crucial tip. Always treat real estate investing as a business. No successful business starts without a proper business plan, so make sure you’ve created a business plan that details realistic goals over a period of time frames. There’s plenty of great resources available for those looking to write a business plan without experience.
The tips listed above will help you ensure the best possible chance for success, but aside from following these tips, it’s a good idea to ask yourself a few questions to make sure real estate investing is the right choice for you.
What kind of investment properties do I want?
Flipping homes is entirely different from renting out an investment property. If you’re flipping a property, you’ll want to consider what contractors are available to you. If you’re handling renovations on your own, you’ll want to think about how much spare time you have available to you. When you’re renting out an investment property, you’ll have to handle all the responsibilities that go along with being a landlord.
How liquid will be investment be?
This is an important question to ask because real estate assets tend to be less liquid compared to other kinds of investments. For example, a stock or mutual fund lets you buy or sell your securities within 24 hours. Real estate is much more difficult to unload once you’ve purchased a property.
What kind of risk tolerance do I have?
Naturally, investing requires some degree of risk tolerance. You’re putting your money into something that will hopefully pay off, but that’s not always the case. Consider what kind of risk tolerance you have and whether or not you’re suitable for real estate investing. Remember that the market can tank at any given time.
Still have questions about investing in real estate? Click here to contact us, give us a call at 757-350-1149 or send us an email at firstname.lastname@example.org to start talking about your real estate goals now. We’re here to help.