So, you’re thinking about getting started in the real estate investment industry? You’ve heard the wondrous stories of people making absolute fortunes flipping homes and turning them into goldmines. While it’s true that this is an incredibly lucrative business to get involved with, a lot of hard work and knowledge comes into play when it comes to making your fortune. Before you even think about buying a property, there are certainly important pieces of the puzzle, such as finding a good mortgage broker and understanding renovation costs. Here are seven things you absolutely need to know before you lay out the money for your first property.
1. Do the Proper Research
There’s a lot more that goes into buying a property than liking the way it looks and seeing its potential. There are multiple factors that you’ll need to take into consideration and look into accordingly, including the type of client most likely to purchase the home, the physical location of the property, and its proximity to important things such as schools, restaurants, shopping, and much more. You want to find a home that will attract clients who can help you reach your expected sales price, so make sure you do the necessary research long before you even start looking for properties in a certain area.
2. Keep Emotions Out of it
While you might feel in your heart that this is a home worth investing in, heartfelt emotions should have little to do with your decision to buy a property for investment purposes. You need to remember that this is a business transaction, not a home where you can raise your family. This means that you need to find properties that make financial sense and not someplace where you can see yourself growing old.
3. Do the Necessary Calculations
So, you think you’ve found the best property imaginable and you can’t wait to get started on the renovations? While that’s great, have you taken the time to work out what these dream renovations will cost and applied it to the final sale price? At the end of the day, you’re looking to make a serious profit off the resale or rental of this property, and so any and all work that you need to put into it needs to be taken into careful consideration and added to the final expected payment.
4. Have the Down Payment Ready
Did you know that investment properties are not provided with mortgage insurance? This means that you’ll need to have at least a 20% down payment ready and waiting to put towards the property. Investment property sales have many more regulations and requirements to properly process, so make sure you work with a quality mortgage broker who can walk you through the steps quickly and efficiently.
5. Take Care of Your Debts Beforehand
Unless you’ve found yourself in possession of a small fortune already, the fact of the matter is that many new real estate investors will need to take out a loan before they can pay for a property. However, the amount you’re able to qualify for with a mortgage broker will depend highly on the loans and debt you already have in your name. Make sure you’ve paid off all student loans, credit card debt, and even medical bills before you start thinking about investing in real estate.
6. Find a Low-Cost Property the First Time Around
While you might be incredibly ambitious and inspired to take this new opportunity by the horns, in reality, starting out small will be the best way to go. By starting out with a lower cost home, it will give you the opportunity to learn from your mistakes without putting yourself in a serious financial predicament. Additionally, this lower end starting point will mean that even if you can’t sell the home for a major profit, you won’t have to worry about massive losses at the time of sale.
7. Choose the Right Partners
While you might think that buying a property with a friend and splitting the profits might sound like a great idea, the reality couldn’t be farther from the truth. Too many friendships end up destroyed as a result of starting out in the investment business together, and it can even lead you both down a path of financial ruin. Rather than putting yourself at risk for this unfortunate situation, keep your feelings out of it and choose partners that logically fit the project. That way, you can be sure you’ll both end up seeing a nice chunk of change by the end.