In the first of our 4 step series on Real Estate Investing for Beginners, we’ll discuss making your first real estate investment purchase.
This article is an overview of some of the major steps involved in entering the real estate market as an investment buyer for the first time. In future parts, we’ll delve into the details of each category. The big picture is a great start, but an investor must focus on details.
Long Term Goals
The first step in your quest to find a new source of income or growing your net worth is to determine where you want to be in at least 5 to 10 years or even longer. Real estate offers several avenues for achieving your goals and allowing you to follow your dreams. Determining what your goals are and putting them on paper in the form of a business plan is a necessity. It doesn’t have to be a formal business document with specific formatting, but more of a device that keeps you accountable and driven. Deviation from the plan is allowed and should be expected at various points along your journey, but it should not be easy to reach a point in which you’ve outgrown your plan in a short period of time.
Real Estate Investment Strategy
This is actually the part of your business plan in which you determine the method you will use to invest in real estate.
- Flipping provides relatively quick, larger profits, while residential renting produces steady income monthly on a smaller scale.
- Developing can be very lucrative, but requires a lot of capital and more time.
- Commercial renting offers larger margins but vacancies can be a huge problem.
- You can also use a combination approach and buy a house for the purposes of a short-term rental, then flip it after a year.
- This will allow you to take advantage of a 1031 Exchange, which allows you to roll your profits over into a like-kind investment without the capital gains tax applying that tax year.
There are pros and cons to each, but none are fool-proof. Determining your goals should allow you to develop a strategic approach for your first and subsequent purchases. Knowing your restrictions and abilities, you should choose a strategy that best complements your strengths and mitigates your weaknesses.
Investment Property Characteristics
When you buy real estate as an investment, you should look at characteristics such as: Price, Location, Occupancy, Use, Potential, Value, and countless intangibles that must be evaluated to determine if a specific property fits into your strategy. Knowing your market and recognizing a good deal is one of the most important aspects when determining if a property fits your strategy. When performing your search, it is imperative that an investor removes emotion from the equation.
Contact an Agent
You’ve developed a plan, formed a strategy, and you know the property characteristics you desire to execute your strategy. If you haven’t done so yet, now would be an ideal time to contact an agent that is knowledgeable in your market and is familiar with working with investors. Choosing an agent that you are comfortable working with and trust is a necessity. Hopefully, this is the beginning of a long and prosperous relationship.
Don’t forget to check back soon for the next part in the series of investing in real estate for beginners.
Questions? Have a property that you need to do something with and would appreciate input from us? It’s free to ask questions, we welcome the opportunity to help! Contact us.