As you begin investing in real estate, you’ll be coming to your first project without any experience. As such, you’ll find that you’re facing a learning curve that will involve many mistakes. While this can’t be avoided, and you’ll improve as you move forward, the following tips can help you limit the errors you’ll make.
Don’t Follow Your Heart
No matter how much you love a property, the numbers are more important than your feelings. For each investment, you should be able to buy the property at or below its market value. Additionally, you should be able to renovate it without spending more than you’ll recoup on its sale. Your goal is to make money on each real estate investment, so be wary of properties that will require a more substantial investment.
Research Limits Your Risks
It’s essential to research each property before you commit to it. In addition to studying the market in that area, you’ll also have to learn more about that specific property. How eager is the seller to make a deal? Will it require significant repairs? How much are the taxes? These are just a few of the questions you’ll want to ask before investing your time and money into any project.
Consider Your Financing Options
Financing investment property is different from financing a home that you’ll occupy, so be prepared to meet more restrictions in the application process. This includes having the full 20% down payment instead of a 3% down payment for a regular mortgage. You’ll also have to figure in your renovating costs to ensure you have enough capital to see the project through to its conclusion.
Your first investment property should be considered a trial run, so you won’t want to take on too much at once. Look for a smaller, inexpensive property. It will also be helpful to tour the property with a home inspector to ensure you’re not buying a money pit. You won’t want to end up with a property that requires significant repairs and updates to make it marketable.
Above all, the best practice is to keep a running tally of expenses versus what you can expect to make back on the property. Everything from the initial purchase price to repairs and property taxes should be considered to ensure you’ll make a profit upon its sale. The net profit you earn on each transaction will determine whether your time is being well spent as an investor.