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
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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