While there are no crystal balls to tell you the future, there are some important considerations to keep in mind before you invest in real estate as a first-timer. Here’s a look at some of the key factors to consider as you decide if you should invest in real estate.
Is it the right time?
First, it’s important to understand the principles of buyer’s and seller’s markets.
A buyer’s market means there are more properties on the market than interested buyers, which means the cost of properties is lower. Since costs will be relatively low, this can be a good time to invest in your first property, especially if you are looking to flip and sell.
A seller’s market means there are more interested buyers in a market than available homes, which tends to drive up the cost of properties. At first, a seller’s market may not sound like the best time to buy a property. If you have the capital to invest, however, a seller’s housing market can be a good time to buy if you plan to make your property a rental.
In either situation, it is important to note that not all markets are affected the same way. For example, homes in one city may be experiencing a buyer’s market while office or retail spaces are a seller’s market. Do the research on where the markets stand in your area.
Where should you look to buy?
One of the cardinal rules of buying real estate is location, location, location. Whether you plan to flip and sell your property or you want to turn it into a rental property, buying a home in an appealing location will give you a wide pool of potential buyers and renters. This, in turn, will give you a good return on your investment.
Consider the same factors you would if you were buying the home to live in yourself. Is it located near schools and restaurants? Does it have nearby greenspaces or parks? Is the neighborhood hot already or is it up-and-coming?
Chances are, if you find a home’s location appealing, your future buyers or tenants will, too. If you have any questions about where local buyers and renters are looking to settle, find a top-notch local real estate agent who can give you the inside scoop on where to buy — you may even find one who’s willing to offer a discounted rate or low commission.
How to invest if you’re already a homeowner
There are some ways to earn income on your real estate if you are already a homeowner. For example, you could rent out a room or section of your home to a long-term tenant or through vacation rentals.
To earn an even larger amount of income, you can consider converting your basement or a room above a garage into an apartment. Not only will you and your prospective tenants have more privacy, but you will also be able to charge a larger amount for rent. This can help you cover a larger amount of your mortgage or a hard-money loan.
Learn more about getting a hard-money loan for a primary residence.
What are lenders looking for?
Although you can pay all cash for your investment properties, as a first-time real estate investor, you might also benefit from taking out a loan. Getting a mortgage for an investment property shares some similarities as having one for your primary residence, but there are differences.
As with securing a loan for your own home, it’s important to have a firm grasp on the state of your finances. Make sure you have most of your other debt paid off and know your credit rating and score across the board. You don’t want to have any unexpected surprises come up that could keep you from closing on a new property.
You will also need to make a larger down payment for a property that is strictly for income purposes. Plan to have at least 20% set aside for the down payment.
Is real estate investing right for you?
Ultimately, only you can decide whether investing in real estate is right for you. If becoming a home-flipper or a landlord sounds like too much too soon, you can also consider dipping your toe in the property market through real estate investment groups (REIGs) or trusts (REITs).
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