Are You Ready to Be a Real Estate Investor?
Real estate investing is an exciting business. Real property is one of the safest long-term investments out there. Homes generally appreciate in value over time and housing is always in demand. You may be thinking about becoming a real estate investor, whether you want to buy one rental property for extra income or you hope to make it your full-time business.
Unfortunately, many people jump into real estate investment without being fully prepared. They watch HGTV and think it looks easy to renovate houses and flip properties. It’s not. A lot of work goes into being a successful real estate investor. You have to research, plan and cover every detail throughout the process to achieve the best possible results. The first investment is often a major learning experience—and sometimes a loss—for inexperienced property buyers. Through preparation and practice, however, you can be successful in this venture!
Have a Business Plan
The first thing you must remember is that this is a business. Even if it’s just something you are doing on the side of your regular job, you have to treat your real estate investment as a business venture. This means setting budgets, performing thorough property analytics, understanding the market for rental or resale, and carefully laying out each detail of the renovation plan. You will also need to know tax laws as they pertain to your passive or active income earned from the property, which expenses you can write off, and so much more. This includes setting up the proper business legal structure for your investment pursuits.
Rental vs. Flip
Part of your business plan will be deciding what you intend to do with your investment property (or properties). Are you going to be a “buy and hold” investor? This means you hold onto the property and rent it out. It takes longer to make money this way, but it’s a great long-term investment strategy as you earn income each month while also gaining from the property appreciation over time. Or, are you going to be a “fix and flip” investor? House flipping is another sound investment strategy (when done right). You purchase, renovate and then resell the property for an immediate profit. Both investment types are valid options, but they each come with their own sets of challenges. Understand what you are getting into and which strategy makes the most sense for your business.
In addition to your overall business plan, you will need project-specific plans and budgets. Each property is different. You have to run separate analytics, develop your renovation plan, set your budget and project your profitability for each house you are considering buying. This helps you determine which properties are worth your time and money, so you can avoid getting into a bad investment situation.
The best real estate investors have a strong network of service providers. You will be dealing with contractors for renovations and repairs. You may need a good handyman for general upkeep and maintenance. You might want to hire a real estate agent to sell the property in a house flip investment, or hire a property management company to manage a rental. You will want to establish a trustworthy network of vendors and service providers because you’ll quickly learn that doing it all yourself is probably not a sustainable plan.
Know When to Move On
Part of being a good real estate investor is knowing when to move on from a property. There may be times you are faced with tough decisions. You might have to cut your losses or break even. Rental property owners will inevitably have to decide when it’s time to sell the unit and move onto something else. You have to know your market(s) and be ready to adjust your plans as needed.
These are just a few tips for anyone looking to become a successful real estate investor. One other tip is to join the PropertyLark home buying network. We offer excellent resources for home buyers, including great off-market property deals, custom property analytics software and other information that will help you get the most out of your investments. Fill out the contact form and questionnaire to the right of this page to see if you qualify.