Ask any high-level investor and they’ll tell you that real estate builds wealth more impressively than any other investment. That truth is why so many people are buying up property, even in today’s seller’s market.
They know that getting a foothold in real estate today could mean hundreds of thousands of dollars in returns as areas become more impacted and younger people start building families.
While the allure or real estate investing is strong in that returns can literally change your financial life, we caution you to not rush into buying investment homes without first doing a lot of soul searching.
Sure, real estate investing can mean big money in your pocket. Investing can also mean financial ruin though if you’re not careful.
To get on the right track, here are some tips to consider when looking into buying investment homes in the coming year.
1. Don’t Compound Your Debt
If you’re already carrying a fair amount of debt due to other purchases that you’ve made, don’t take on more debt to get into real estate investing.
Loans structured around investments can get complicated. An investment property also has a lot more risk involved as far as what could potentially go wrong that might lead to you falling behind on payments.
Make buying investment homes something that you’ll explore when you have the rest of your financial life in order as opposed to making it something that will further complicate your financial life presently.
2. Know What Type of Investment You’re Looking For
There are a lot of different facets of real estate investing out there.
There’s buying homes for the purpose of reselling them at a profit, there’s renting homes, there’s buying and selling commercial buildings (which you can see more of online…) The list goes on!
Make sure that investing in residential property is the right kind of investment for you. Then, understand what you plan on doing with the residential property that you acquire.
Knowing how you want to structure your investments will inform the kinds of property that you look at.
3. Calculate Your Returns
Investments live and die by returns. For the uninitiated, your returns are the amount of money that you’re going to make from your investment over the course of the year.
For comparison’s sake, there are high-interest savings accounts out there that present no risk and offer 2.3% in returns. You’ll want your real estate venture to do much better than that.
Understand how much money you’re going to put into a piece of real estate and what you’re likely to get out of it.
For people that are flipping houses, you’ll look at the cost of a home plus renovations versus its sale price. For people renting homes, look at the cost of a mortgage, maintenance, taxes, repairs, etc. versus how much you can charge in monthly rent.
4. Plan For Vacancy
Buying investment homes for the purpose of renting them out is one of the most popular means of investing. A common expense while renting that a lot of landlords forget is something called vacancy.
When you rent a house, you need to count on the month or so per year that your property is going to sit empty between tenants. If you fail to build that expense into your monthly rent charges, you could end up turning a net loss on an annual basis.
5. Consider The Implications of a Fixer-Upper
Buying fixer-uppers is another popular investing strategy thanks to the number of TV shows that glamorize the process.
In truth, fixing and flipping houses is extraordinarily hard. You need to have huge amounts of contractor knowledge to pull off big jobs or need to at least be in contact with a solid group of affordable contractors.
We’ve seen many people buy a fixer-upper as their first investment property only to end up going broke when they realize that they don’t have the skills or capital to push through the job.
In our opinion, this isn’t where you should start your investment journey.
6. Think About Bringing on a Property Manager
People that buy houses to rent them quickly find that acting as a landlord is a full-time job. If you’re not looking to make a career out of being a landlord and instead want to collect your real estate income as passively, property managers are well worth your consideration.
Property managers will take a percentage of your monthly rent and in exchange, will deal with all of the day-to-day problems that your investment property and tenants have.
While you might save some money by managing a property on your own, most people feel like the time costs of doing so make managers more than worth hiring.
7. Invest With the Future in Mind
When you’re scoping out property to buy, try and purchase property in areas that you think will appreciate more rapidly than the standard real estate market over the next 10-years.
For example, if you know that Nike has plans to build a headquarters in a sleepy town, buy up property now knowing that once Nike’s doors open, people will be flooding in for jobs and those people will be competing for housing.
Buying with the mindset of what an area will look like tomorrow versus what it looks like today can score you an incredible deal on an investment property.
8. Work With a Pro
Real estate investing is a practice that’s filled with potholes that can derail your ambitions. To avoid these potholes and save yourself some money, hook up with an investing pro and shadow them through a few deals before you start on your own journey.
A little bit of education goes a very long way when buying investment homes.
Closing Out Expert Tips on Buying Investment Homes
Buying investment homes is going to be a big wealth generator in 2020. If you’d like to profit alongside other savvy investors, consider our tips above and keep browsing more of the real estate content on our blog for additional inspiration.