Investing in real estate is much more complicated when compared to investing in stocks. The main reason for this is because of the legal, financial and even extensive requirements. For this reason, it is a good idea for you to do your research so that you can give yourself a solid educational foundation to start out with.
Location Is Everything
Location matters more than anything. Don’t pay your down payment unless you are certain that you are buying in a good area. Ultimately, you need to buy the worst house on the best street. When you do this, you will be able to build on your equity and you will also be able to give yourself the least amount of risk. Of course, if you are having a hard time knowing where the best areas are then don’t be afraid to talk to other people. Ask people who live there what they think and also do your research regarding the house prices too.
You always need to make sure that you are getting the best deal. You should never be paying full price for a property either. Instead, look for a property that needs a bit of work and calculate the cost to find out if you can make a profit. A good rule of thumb is to calculate the cost of repairing a property, and then work out if the return is going to be double the price of the work. When you do this, you can easily give yourself the best chance of making a good investment and you can also set yourself up for the future too.
When you invest in a property, you will probably need to take out a mortgage to cover it. For this reason, you need to check your credit report before you start planning out your investment. If you are having problems with your credit, then you need to get these sorted out as soon as possible. This could be something as simple as having the wrong address down, or even a duplicated detail. If your problems are more legitimate, such as having a court order or even late payments then you need to reconsider your investment.
The 1% Rule
If you are buying a property that you intend on renting out to other people, then you need to
calculate how much rent it is going to bring in for you. The 1% rule is great here. If you want to implement this then you need to make sure that the total rent, you are bringing in is 1% of the total cost of your loan. If you don’t believe that you can get this or if you aren’t sure if there are tenants who will pay that much, then this is a sign that you are not making a good investment. A lot of people believe that the best way to make money is to invest in a lot of properties, but this is not the case at all. It’s far better to have one solid property in a good area than it is for you to have ten properties in an average area. The main reason for this is because it’s harder to fill 10 properties when compared to filling just one, especially when you are planning on doing everything yourself. You also need to remember that empty properties will lower your income so the more you can eliminate this risk, the better.
You should always go to auction for a property if possible. This gives you the chance to secure a great deal and the low cost means lower risk. You should note that some banks are not as willing to lend you money if you are buying a property this way however, so do your research and make sure that you are choosing one that can still give you a good rate. Sometimes when you buy a property through auction, it is not possible for you to view the property beforehand, so you have to make sure that you know exactly what you’re looking for. This will stop you from making impulsive decisions and it will also make it way easier for you to generate a profit too.
Banks will often give you a much more favourable rate if you put down a higher deposit. The interest rates are often put into brackets, so you might not need to put down that much more in order to push through to the next band. It’s worth looking into this because you can save a substantial amount of money over time and it will also make it easier for the first couple of years at least. If you are not sure if you qualify for a good interest rate or not, then you should always try and use a broker. When you do, they can then advise you on the best way for you to obtain a good mortgage and they can also speed up the process for you as well, which is another huge benefit. If you are not sure about the real estate process, then check out this helpful buying property guide.
Décor and Improvements
When purchasing your home, you need to make sure that you are not making too much of a commitment. Sometimes all a property needs is a new lick of paint and some updated décor to fetch a profit, whereas others need gutting and completely stripping out. For this reason, you need to try and work out how you could improve a property before you make an offer. If you don’t believe that the property needs improving then this could mean that it is a bad investment, and it may even put you in negative equity as a result. If a property needs too much work, then this can bring about the same result. Ideally, you need to aim for a property that needs a bit of TLC but not full-on structural repairs. This will give you the highest chance of making a profit.