Investing in real estate can be challenging, but it can also be financially rewarding especially if you know what to do. It is, in fact, one of the most effective ways to earn passive income, build your wealth, diversify your investment, and prepare for retirement. However, like any other investment, there are many risks associated with real estate. It’s important to be prepared and careful to help mitigate your risks.
These are the top 6 things you need to know before buying that first investment property:
- It Requires a Good Amount of Cash
Whether you are planning to build and sell a property, fix-and-flip it, or rent it out, you have to have a substantial amount of cash for the downpayment and other expenses. This also means that you should take extra effort to ensure that you earn a good amount of profit on your investment.
- You Need to Have Patience
Investing in real estate requires money, time, and a lot of patience. If you plan to renovate an old property, you need to work with different people (i.e. contractors) to finish your project. The renovation process may be stressful and you need to set your expectations clearly. You also need to have a contingency plan in case the actual work does not meet your planned budget and timeline.
- Do Your Research
While it’s important to work with experts, it is also equally essential to do your own research when it comes to your real estate investment. For instance, when shopping for a possible property to buy, check the market within the area to ensure that the property is not overpriced. You also have to make sure that the property is located in an area that will attract the type of buyers or renters you are targeting.
- Have a Good Credit
Have you checked your credit report lately? If you haven’t done so, now is the time to do it. Making sure that your credit report is accurate and free from error is important especially if you plan to secure a loan to finance your purchase. Dispute any error as soon as you find one. Most lenders will require a good credit score so you can borrow at a reasonable rate and favorable terms.
- Be Prepared With Your Numbers
Calculate your expected expenses and profits beforehand. If you plan to take a loan, the lender may require to see this. Even if you won’t need to work with a lender to finance your real estate investment, you need to be aware of how much you should expect to spend and how much you expect to earn. Be conservative when preparing a budget and set aside a certain amount as a contingency, in case something unexpected happens. More importantly, you have to be sure that your investment will earn you profits or, when things go worse, at least save yourself from a huge loss.
- Factor in a Homeowners Insurance
Whether you are planning to sell the property or rent it out, protect your investment and your interest by making sure that you set aside a budget for homeowners insurance. If you sell the property, you can include the pro-rated insurance expense to your selling price. If you decide to rent it out, then you will have peace of mind because you know that your investment is protected in case something undesirable happens to the property. As there are different types of home insurance to choose from, make sure to choose the one that provides the kind of coverage and protection that you need.
Grow Wealth Through Investing Real Estate
Just as with any other investment, investing in real estate can be very tricky and it takes time and effort to really learn the ropes. Buying your first investment property can be both overwhelming and exciting, and you may experience unexpected things along the way. Make sure to seek the help of professionals, do your own homework, and be prepared financially, mentally, and emotionally.