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How to Invest in Real Estate: 3 Smart Moves

invest in real estateIf you have decided to invest in real estate and you are new to it, there are a few things you need to know before you start making offers on houses.

Real estate can often be a good investment, but it’s also a huge risk if you do not know what you are doing.

If you are wondering how to invest in real estate and be successful at it, these 3 moves can definitely help if you are a beginner. 

Know What to Look For

Not every pretty house is a good deal and a solid investment. In fact, it’s often the ones that are a little worn around the edges that will turn a better profit because you can easily add value to the property.

Purchasing a rental property is not about loving the house – it’s about running the numbers to find something that gets you a good return. 

If you want to invest in real estate successfully, you need to find a property where your monthly mortgage (assuming a traditional 80% mortgage with a 20% down payment), taxes, and insurance payment amounts to 50% or less of what you can get as rental income from the property.

This may sound like a tall order, but it’s a great way to ensure that you get a property that will cash flow even after vacancies, repairs, and property management are all calculated.

Find out approximate mortgage payment amounts and comparable rents in the same area before you make your final decision on any property.

Find a Good Deal to Invest in Real Estate

If you are looking for a really good deal on real estate, you are going to have to work a little harder than the average person.

Once you know what kind of a property you are looking for, how much you are willing to invest in real estate, and what kind of rent you can expect, you can start your search.

You should have a realtor set up a search for you, so you can get houses that match your criteria sent directly to your inbox, allowing you to put offers on them quickly: short sales and foreclosures can be rock bottom prices, but they can take a long time to process, so be prepared to wait for a response to your offer.

It is also a good idea to meet with other real estate investors and work with them to find deals that have not yet been put on the market. You wll probably have to look at a large number of houses to find something that’s going to get a good return, and you may not get an accepted offer right away.

One of the easiest ways to get a good deal and profit from your real estate is to increase the value of the property itself. In investor Jim Randel’s book, The Skinny on Real Estate Investing, he says, “I do not believe in buying a deal which has no added value opportunity.”

It will increase the amount you receive when you sell it, but it could also help you increase rent prices and get a larger cash-flow immediately.

If you are getting a mortgage, though, it’s important that you invest in real estate you can improve, that is within the rules of the mortgage lender, who usually require the property to be livable.

The best bet is to find a place that needs paint and carpet and some minor repairs. Those houses sell for a good chunk less than ones that are move-in ready, because they don’t show as well, but don’t take much cash to get ready to go.

Find a Good Tenant

real estate investingIf you decide to invest in real estate, your main goal is obviously to make money, not to lose it.

A great house can be a disaster in the hands of a lousy tenant. You could lose all your profits to lack of payment, eviction proceedings, and repairing the damages they have caused to the property.

There are companies whose sole purpose is to find you solid tenants, but they cost you between 50% and 100% of a month’s rent to do so. You can also search on Craigslist or other websites to find people in need of a place.

Whatever way you decide to go, make sure you do your due diligence by checking the possible tenant’s income level and credit report for any big red flags, as well as meet them in person if you can.

Call or email their references and previous landlords. It may seem like a lot of work, but it could stop you from landing in a big pile of trouble down the road.

Whoever you find as a tenant, even if it is your best friend, be sure to get everything in writing and have a solid lease that explains exactly who pays for what and the consequences of non-payment.

It is an easy process to write up a lease, and you can find example leases online to use, but it’s an important step that sometimes people do not feel is necessary.

If something ever goes wrong, though, you want to have the documentation to show that you are following all the laws to help you avoid losing money in a lawsuit.

Investing in real estate is a great way to bring you some extra cash, but you need to go into the process with your eyes wide open to the realities of being a landlord.

If you decide to invest in real estate, make smart decisions and you can find yourself turning a huge profit, but poor decisions can be a losing proposition, and can cripple you financially.

Find a good property that meets your requirements, get good tenants, and follow the letter of the law, and you will find yourself very happy with the investment you have chosen.

What are your thoughts on how to invest in real estate for income?

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9 Responses to “How to Invest in Real Estate: 3 Smart Moves”

  1. Breanna Says:

    Great tips! I was just thinking about starting looking for some investment properties and your article gave me a lot of valuable information on investing in real estate. Thanks for sharing with us!

  2. Elena Says:

    Hello Breanna, great to hear that you could find some useful information on our site regarding investments in real estate. It is definitely a great market right now to take advantage of. Thanks for stopping by! Please come back again!

  3. Hank Says:

    These are some great tips. You definitely have to treat it like any other investment. If you expect a return of 10% on your investments, you have to buy your rental house with that in mind. Otherwise, your money could be better spent on other investments. Great post!
    Hank recently posted..Why Socially Conscious Investing May Be Costing You A Lot Of MoneyMy Profile

  4. Elena Says:

    Hello Hank, you are absolutely right! If you want to invest in real estate successfully, you need to have a good plan, know what to expect and how to get there.
    Thanks for your feedback!

  5. Steve Says:

    This article came at the right time for me. I’m just at the beginning stages of renting out a house. And I’m talking really beginner. I know a little bit already, but the information here was helpful in clarifying some other things. I know it will probably be a lot of work, but I’m ready for it. I think it will be a good move.
    Steve recently posted..Why Couldn’t it be You?My Profile

  6. Razwana Says:

    Hey Elena. I love the idea of investing, but it can take a lot of time, and like anything, it can be very stressful.

    I have an investment property, and I have had had my fair share of ‘downs’ with it! This is something someone has to really consider – even if a letting agent is managing it, ultimately the responsibility is on the landlord to ensure the property is in order and taking the financial risk.

    – Razwana
    Razwana recently posted..Entrepreneurship is NOT the holy-grail – it’s ok to have the 9-5 dreamMy Profile

  7. Elena Says:

    You are absolutely right Razwana. Investing in real estate is not for everyone and can be stressful at times. One should weigh all the pros and cons before making such an important financial step. Thanks for your insight and please stop by again!

  8. Daisy @ Prairie Eco Thrifter Says:

    We are so lucky, because we have a great tenant. He happens to be my brother. He is gone but still pays rent for a few months – half of the year, and when he’s here, he’s quiet, considerate, and clean.

  9. Elena Says:

    That’s quite a tenant: never home and pays rent! How did you get so lucky Daisy? Thanks for checking out the article. Have a great day!

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