- #1 - Taking care of our own debt
- #2 - Do the repairs on your own
- #3 - The snare of high-interest rates
- #4 - Calculating profit margins
- #5 - Start with a low-cost home
- #6 - Location sells
- #7 - Be fully aware of all the risks
No matter how savvy you are when it comes to investing, the real estate business is like no other. Since your real estate investments likely measure in the hundreds of thousands, it is wise to educate yourself about investing in real estate before you transfer that next amount.
In fact, there are at least 8 tips beginners should know before making their first investment in real estate. And, if you play your cards right, there might be a huge profit margin waiting for you.
Let’s have a closer look at the real estate investment tips for beginners:
#1 – Taking care of our own debt
Before you are ready to look into investment opportunities, your finances need a clean bill of health.
Namely, you should make sure there are no debts that are weighing down your purchasing power.
Everything from student loans (of which there is a crisis in the United States) to unpaid medical bills should be taken care of before your first investment.
After all, it wouldn’t be wise to purchase a property if you have a mortgage on your own home, for example.
#2 – Do the repairs on your own
If you are buying a piece of property for you and your family to live in, then it’s perfectly natural that you’re the one who’ll spruce it up.
However, when it comes to property investment, beginners get carried away and hire other people to refurbish the houses and apartments they have invested in.
Although this move seems logical, it is actually quite expensive in the long run. For this reason, try to find properties that don’t require a lot of subsequent investing and make sure you can do these repairs on your own.
Furthermore, if you have renting in mind, then be sure are up the role of the landlord that borders the job of a handyman.
#3 – The snare of high-interest rates
If you browse through the credit line of any financial institution, you might get the impression that borrowing money is cheap nowadays. However, as we have stated above, interest rates can be higher on an investment property than mortgages on residential housing.
For this reason, wise property investment includes researching the financial market in the search of low interest rates. After all, it is your profit margin that’s at stake since high-interest rates can eat it up entirely!
#4 – Calculating profit margins
Speaking of margins, if you wish to make a profit, you first need to list all your expenses.
For instance, the cost of maintenance should be around 1% (of the value of the property) or even less if you do the work yourself.
Then there is home insurance, homeowners’ association fees, national, regional, and local property taxes. The list of expenses will never be truly populated, so always plan up to 20% extra funds. If you do everything correctly, the profit margin should linger around 10%.
#5 – Start with a low-cost home
Since you are a novice in the real estate business, we recommend that you start off lightly and purchase a low-cost property.
Not only will you pay less to start with but all of the accompanying costs will be lower as well, providing you with more room to manoeuvre.
#6 – Location sells
The price of the property shouldn’t influence the location that needs to be ideal.
In fact, location takes precedence over the value the property is being sold for.
A location is much more than the physical location of a house or an apartment block. It includes the distance to the nearest school, access to medical care, the neighborhood crime rate, access to labor, etc.
You should try to get as many of these factors as possible to go in your favor.
#7 – Be fully aware of all the risks
You’re entering the real estate market to make money but be aware that this is a risky undertaking. If you invest in rental property, there is a risk of running into dodgy tenants that might be late with monthly rent. Furthermore, be prepared for the rental income to undershoot the total mortgage payment.
Also, keep in mind that property is nothing like stocks, which you might have traded with earlier. You cannot simply sell real estate when you feel like it so, don’t hope for quick returns; rather pray for them. It will take a large sum to enter the real estate market and an equally hefty sum to exit the trade.
All-in-all, there are many more pieces of advice for beginners than the ones we have listed above. Hopefully, they will be enough to keep you afloat in the first couple of months after purchasing your first property.
Once you learn the ropes of property investment, you can expect your profit margin to gradually increase.