10 Actionable Tips for Real Estate Investing Like a Professional
In 2020, first-time homebuyers accounted for 33% of the market. By becoming a real estate investor, you could find a great new source of passive income. You can achieve financial freedom and enjoy the wonders of owning your own business.
Don't rush to get started just yet, though! Instead, read through these tips for real estate investing first. With these tips, you can invest in your new career without making costly mistakes.
The knowledge you gather now can set you up for success for years to come.
Ready to get your new real estate investing business off the ground? Get started with these 10 easy, actionable tips today.
1. Consider the Costs
Median list prices for homes in the US reached $349,000 in 2020. That's 8% higher year-over-year. Before you start investing, it's important to consider every cost involved.
Otherwise, you might realize you don't have the funds to get started yet.
Property costs alone are a lot to consider. You can either use your own funds or take out a loan to cover the costs. However, there are additional expenses to consider as well, including:
Basic maintenance
Upgrades
Annual upkeep
Expenses like taxes and utilities
If you decide to take out a loan, make sure to consider real estate investment trusts (REITs).
REITs are companies that either own or finance real estate property. These companies allow people to invest in properties. Meanwhile, the REIT will pay out most of the taxable income.
Investors, meanwhile, are responsible for income taxes.
Before you decide which route to take, consider every expense. Planning now can help you avoid financial issues down the road.
2. Choose a Niche
There's no one way to invest in real estate. Before you use these tips for real estate investing, consider your ideal strategy. For example, you might want to think about:
REITs
A fix-and-flip strategy
The buy-and-hold strategy
Wholesaling
Each strategy has its own list of pros and cons.
The buy-and-hold strategy allows investors to take advantage of appreciation. You can preserve and accumulate net worth over time.
It also allows investors to take advantage of tax breaks.
Wholesaling requires minimal capital. However, you'll need to put in the time and remain diligent.
Once you choose your real estate investment strategy, pick a niche. Your niche will determine the type of property you'll purchase in the future.
For example, if you choose the buy-and-hold strategy, focus on apartment buildings and single-family homes. If you want to invest in a REIT, you can focus on commercial properties in the healthcare or retail sectors.
Decide whether you want to go the commercial or residential route, too. For example, you can become a landlord and rent out living space. You could turn your property into a vacation rental or Airbnb.
If you prefer to avoid renters, you can purchase property to flip instead.
3. Develop Your Business
Before you start exploring a geographic area, have a business plan ready to go. Your business plan will help you outline your investing goals. Then, you can determine which strategies will help you achieve those goals.
This is a great time to consider looking for business partners, too.
As part of your business plan, you'll need to form a business entity. Forming a business entity will separate your business and personal assets. You'll also have the potential to receive tax incentives.
Consider forming a limited liability company (LLC), S-corp, or C-corp. You can speak with a tax professional to determine which option suits your needs.
4. Perform a Market Analysis
Once you set up your business, you can determine where you want to start investing.
Many new investors use these tips for real estate investing in their local market. Don't limit yourself, though. Instead, consider remote real estate investing.
You can choose a market based on its metrics instead of its location.
You'll need to perform a market analysis to find an emerging neighborhood. Consider the supply and demand in the area. Look at how many homes are for sale in that area, too.
Then, consider how many days each home has remained on the market.
5. Build a Team
You don't have to use these tips for investing alone. Once you find the geographic area you want to invest in, start building your team. Work with qualified real estate professionals who are local to the market.
Choose someone who is knowledgeable of the area.
You might want to find a property management company, too. If you need to rehab properties, look for contractors as well.
6. Prepare for Showings
During a showing, you'll need to make sure the home is structurally sound and in good condition. Focus on properties that don't have too many issues. That way, you can save on your bottom line.
Have a wall thermometer, moisture meter, and laser measuring tool with you. Then, you can decide if the property is worth pursuing on your own.
7. Run the Numbers
Once you've found a few different properties to consider, you'll need to run the numbers. Calculate the:
Capitalization rate
Internal rate of return
Cash-on-cash return
Debt service coverage ratio
Net operating income
Calculating these metrics can help you determine if it's worth buying each property.
8. Budget With Care
If you decide the numbers work out, consider buying the property. Take the time to consider your carrying costs, too. Budgeting for carrying costs can help you calculate the total upfront cost of the property.
You'll need to consider the down payment and closing costs as well.
9. Draw Up a CMA
A comparative market analysis (CMA) can help you determine how you'll bring in money. You can research recently sold properties that are similar to yours. Then, you can use the CMA to determine your pricing strategy.
Work with your real estate agent to determine how to price your property.
10. Focus on Growth
As you gather different properties, make sure to keep your profit in mind. How can you sell the property for more than you paid for it? Build the property's value by making additions and upgrades.
Set Yourself Up for Success: 10 Tips for Real Estate Investing
Don't rush to start buying properties. Instead, use these 10 tips for real estate investing. With these tips, you can develop your business and set yourself up for success.
Eager to get started? Work with a real estate agent you can trust.
Schedule an appointment today to discover your options!