You’ve always heard that real estate investing can be a great way to make money and build wealth. But you aren’t sure where to begin.
Although real estate investing can seem complicated, it doesn’t have to be as long as you have the right information and tools at your disposal.
Check out these ten tips that will help you start successfully investing in real estate today.
1) Figure out your goals
Before you get started, it’s important to know exactly what you’re looking to accomplish with your investment.
Are you planning on flipping a home to make a quick buck?
Or is your goal more long-term and aspirational, like building passive income so that you can retire early?
If your goals are flexible, then there are several different strategies you can consider when investing.
If not, though, it may be better to work with an investment adviser who will help guide your decision-making.
And ensure that whatever decisions you make today align with where you want to be tomorrow.
2) Figure out the market
Understanding your local market is key.
Check with a real estate agent to see what prices you should expect for rental properties.
Then head out and drive around to find available properties that rent.
Once you have an idea of what’s available, decide how much space you want to buy and how much you can spend on down payment and monthly mortgage payments.
This will help narrow down your search.
3) Determine how much you can afford to invest
Before you jump into real estate investing, determine how much money you have to invest and what kind of return you want to see.
Once you’ve figured out a good investment strategy, take a look at your assets and liabilities—both personal and business-related—to make sure you don’t end up overextending yourself.
Real estate investors are often guilty of overestimating how much they can afford to invest while underestimating their ability to generate cash flow.
A good rule of thumb is that you should be able to cover at least one year’s worth of expenses before investing any money in real estate.
4) Research neighborhoods
Many factors go into real estate investment and deciding where to invest is very important.
The first step of starting a real estate portfolio is doing your research.
You need to determine what price range makes sense, which neighborhoods have proven growth, which areas have high vacancy rates, etc.
If you’re going to spend time and money on potential investment property, you want to make sure it’s worth it.
5) Ask friends for referrals
Asking friends and family members for referrals is one of the best ways to find leads.
If you’re just starting, ask anyone who you know who may have a real estate agent as a friend.
Have them ask their agent if they know of any people looking to sell or buy.
It won’t take long before someone knows someone who knows someone else; hopefully, that person is looking to sell.
6) Start by buying a property you know
In the same way, you wouldn’t attempt to learn a new language by buying a plane ticket to China, you don’t want to dive into real estate investing without understanding your market.
Even if you have never lived in an area, take some time to research it—what do residents love about it?
What could be improved?
How much demand is there for similar properties?
Start by focusing on areas where you have some knowledge and then branch out from there.
If you live in Chennai but are thinking of buying real estate elsewhere, your focus should be on smaller cities that have similar qualities and cultures as Chennai.
7) Get pre-approved for a loan investing in real estate
Once you’ve decided that buying is right for you, it’s time to get pre-approved.
This will give you a good idea of how much money you can borrow and what your payment range would be.
You can get pre-approved through a bank or mortgage broker.
If your down payment is 20% or more, getting pre-approved through an online mortgage lender will save time by not requiring an appraisal and inspection of your home.
It’s a worthwhile step even if your down payment is less than 20%.
Remember, it doesn’t matter how great a deal seems if you can’t buy it.
8) Know what rental costs are profitable
To determine how much rent you can charge and still make a profit, start by determining what you’ll spend to maintain your property.
Add 10% of that total as a cushion, so if you plan to pay Rs 30,000 per month on maintenance costs and other expenses, consider listing your rental price at Rs 33,000.
Remember that some repairs are inevitable—and even normal wear and tear can be higher than you expect.
So it’s important to overestimate rather than underestimate when it comes to budgeting for repairs.
9) Get your finances ready before investing in real estate
As an investor, you don’t want to purchase a property only to have to take out a mortgage loan.
If you can save up at least 20% of your down payment, you won’t need outside financing and will be able to buy without the risk of being thrown into debt by unexpected expenses.
If you don’t have that much saved up yet, start budgeting; putting away Rs 10,000 per month can make a big difference over time.
And while it might not seem like it now, once your finances are ready and your credit history is strong, you’ll be one step closer to owning an investment property of your own.
10) Do Your Homework
Do your homework, know what you’re getting into, and come up with a plan that is right for you.
Anyone can buy real estate and turn a profit, but only if they are prepared to do their homework.
As with most investments, potential returns will vary widely based on the type of property (residential vs. commercial) as well as location and market trends.
What’s more important than earning a return on your investment is using it to build wealth while also providing housing to someone who would otherwise not be able to afford it.
That’s how you’ll create long-term value through your investing career.
And that’s how you will best use real estate as an investment tool.