As with most alternative investments, the real estate market will probably not produce results immediately. Nevertheless, if you are willing to do the research, the payoff can be great. Let’s talk about how to do that research and make a good purchase for substantial real estate returns.
If you have heard the popular real estate investment adage, make your profit when you buy, you already know that this kind of alternative investment takes patience. Since there is no way to predict the ups and downs of the market in the future, buying smart means, above all else, being realistic and understanding exactly where the market is at the moment when you buy.
If you are just starting out with a new purchase, it is definitely best to start small. A simpler building, such as a duplex, is an excellent place to start when considering a real estate investment.
Do Your Homework
When investing in real estate, you must consider all the costs that apply to the property. You are never just buying a building, a lot, some land, or a condo – you are buying closing costs, insurance, and improvements. Buying smart means that you will avoid overpaying.
Buying below market value can give you a leg up but you need to be careful when making a purchase on a property that needs work. Fixes and repairs, depending on the severity, can cost more than the property itself. Overspending on improvements can also increase costs without necessarily increasing your ROI, so take caution when you buy into enhancing the space.
Remember the Rules
There are a number of “rules,” really rules of thumb, when it comes to buying smart in real estate. One important (and very basic) rule when it comes to investing in real estate is the 2% rule: the rent each month should equal roughly 2% of the purchase price. Similarly, the 50% rule is such that you may have more expenses than you previously anticipated. With this rule, you should expect to spend about 50% of your income on property expenses.
When you have your property set up, make sure that the inhabitants you let in are going to pay up. Do a credit check and make sure they have viable references. Reliable tenants who are in it for the long haul are definitely worth their keep, so try and find someone who is planning to stay on the lease.
Have a Way Out
Don’t forget that when you purchase a property, you should always think through about how long you are planning to hold on to that particular investment. Not only should you plan ahead in this regard, but you should also consider that pulling back could actually pay off in the long run. In the world of investment, there is always something to lose. Being conservative in your approach to real estate investment means that you stand to lose a lot less in these cases.