Real estate investing is not a direct line to wealth, there are many twists and turns in that road, but there are certain steps you can take to ensure that you are on the right path and have a better chance for success. We have compiled some important lessons and tips for property investors below:
Look for Properties in Popular Neighbourhoods
Rental properties are the perfect way to invest in real estate and popular neighbourhoods offer the best potential for growth of your investment. This allows you to maximize your profits while ensuring that the income you obtain from your rental covers your property costs.
Your Investment Should be Diversified
Many investors state that the best real estate investment is the one you have your backyard. Investing close to home means that you understand that area where you are making an investment but if you limit the area that you invest in your are also limiting your potential to make a profit. When you consider investing in other cities or areas you will increase your investment pool, diversify your portfolio, and protect it against local markets which may be volatile.
Do not Spend Too Much Money on Renovations
It can be tempting to update an investment property with high end fixtures, flooring, and countertops. You don’t need to spend bucket loads of money to make a rental property look attractive and modern and if you just plan to flip the property the less you spend on updates, the bigger your return on investment. Every dollar that you overspend will eat away at your profit margin, so be frugal when you are updating an investment property.
Never Over-Extend Yourself
You can own a multitude of properties and still lose your shirt if every property in your portfolio is mortgaged to the max. If all your rentals are fully mortgaged, then you do not have any leverage. Keep some of them free and clear of any encumbrances while others are financed to keep a good mixture of safe investment and profit. If you do this correctly then when you experience vacancies that are longer than you had expected, then any cash flow dips will not finish your investment career.
Invest in Single Family Units
You want to attract the right tenants to your rentals and single-family homes are the right way to do that. Every family wants to live in a house, but many cannot afford to do it, particularly when they are first starting out. Some people simply do not want to own a home because of all the responsibility and financial cost. Single family homes are an amazing investment and always give a good return.
Deal with Maintenance Issues Immediately
If there are things that need to be repaired in your rental properties, you should take care of fixing them immediately. It is a good idea to write a bi-annual walkthrough into your lease agreements so that you can see anything that needs repair and take care of it right away. Inspections of sinks, toilets and water tanks can identify small leaks before the become a large issue and this can save a pile of money in the long run.
Understand Your Market
When you invest in real estate you need to be an expert in your market. This means staying informed on what the current trends are which includes the rent prices, the income of your intended tenants, what the interest rates are, and the unemployment rates so that you can prepare for the future and understand the current status of the market. When you understand your market, you can stay ahead of the curve and become more effective with investing in real estate.
Get to Know Crime Rates
You need to research the crime rates for the area that you plan to buy a property in. It will be difficult to find new tenants if the home is not in a safe neighbourhood. No amount of incentives are going to help get tenants into your new rental if the crime rates are high because they are not going to feel safe living in that environment. Choose your property carefully, make sure it is in a good and safe area and not in an area where a lot of crime happens.
Set Your Budget and a Timeline
A budget and a timeline are guides because you will exceed both. Be sure to never go over your budget by more than 50% when you are renovating a home. You will run into issues because most of the time when you run into one issue it leads to another one and before your know it you have spent way too much money on the project and you have cut into your profits. Your timeline should be 60 days meaning your project will take about 90 days. Added expenses always add extra time onto the project too.
Give the Seller Better Terms
Sometimes in a bidding war the sellers will look at the offers and the prices, but terms are equally important. Offering the seller favourable terms including a shorter closing date or increase the deposit. You can also limit the appraisal and financing contingencies and reduce the inspection period. Sellers want to get the best deal when they sell, and they also want to sell quickly because the longer they hold a property the more expenses they must deal with.
As Your Portfolio Expands, Do Less
In other words, stop being a jack of all trades. As your rental units increase and so does the money you are earning, you will be able to afford to outsource your tasks to professionals. Factor in all the costs for repairs when you buy a property including hiring a property manager. If you decide to manage your own properties, that is considered an expense so be sure to pay yourself. This will also lower your taxes payable on the revenue that you are earning and will remind you that your time is valuable.
There are lots of things to consider with property investments from which properties are right for you and will bring the highest returns to how much you need to invest in each property before being able to flip it for a profit. If you want to get started investing money in properties, consider contacting a property investments consultant, they can help you with all the ins and outs.