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The First 5 Steps to Take if You Want to Invest in Real Estate

Written by  //  2020/06/24  //  Buying a Home  //  No comments

investing in real estate

Investing in real estate is one of the most effective and time-tested methods for wealth accumulation. In fact, surveys show that roughly 90 percent of the worlds wealthiest have been able to amass their fortunes partially or completely thanks to smart real estate investments.

That being said, the art of real estate investing isn’t learned or perfected overnight. The craft takes years to develop. Along the way, you’ll lose money from sitting on a property that depreciates in value rather than appreciates it. Skip the novice mistakes by keeping these five baby steps in mind.

Secure Capital

As with any investing career, you need one thing to start – money. Without money, you can’t buy assets that supposedly generates more money. Figure out how much you need to buy your first property. This will depend on the type of property you invest in, whether it’s residential apartment buildings, commercial warehouses, etcetera.

Although it’s widely known that the standard down payment for any property is 20 percent, today’s market allows you to put down as low as three percent. That means if you’re looking at a $200,000 property, the down payment can be as low as $6,000. Of course, this presents a higher risk and higher monthly payments; the upside is that you can start building your real estate investment portfolio faster.

Decide Between Buying or Building

There are pros and cons to each route. For instance, buying an existing property means you can start putting the house to work. The downside is the relatively higher costs. Meanwhile, building a property through a professional like Dix Hills Home Builders means you have full control of the specifications as well as the costs of the project.

The downside, of course, is that the timeline is much longer since you have to account for construction. Which route you take also depends on what investment style you’re going for. Flipping houses, for instance, only works with buying existing properties. Building a property, on the other hand, means you’re in it for the long haul.

Master a Location

When it comes to real estate, the location has a higher weight than most other factors. You don’t want to position your investments in a neighborhood with a high crime rate or one that is at a relatively higher risk of experiencing a natural calamity, such as flooding or earthquakes. Zero in on a neighborhood and study its economy.

What are the average prices of housing in the area? Is the cost of living increasing or decreasing? Are there visual signs of economic progress or contraction, such as increasing construction activity or business foreclosures? In-depth research is key to identifying potentially lucrative areas that few investors and buyers are paying attention to. While San Francisco and New York are obvious choices for real estate investments, they tend to be saturated and the cost to entry is higher than normal.

Determine What Terms Should Be Included on Your Lease

If you’re renting out the property, come up with the terms that you are prepared to offer potential tenants. Determine the rent, fees and penalties, annual costs, utilities included, and emergency funds that you can tap into if there is a negative balance in your budget.

Consider appointing a property manager, especially if you plan on expanding your portfolio to other locations. Knowing these details is key to avoiding any unforeseen expenses once bills start coming in.

Manage Risk at All Times

While real estate is an inherently low risk due to the simple and all-encompassing fact that people will always need housing, there is still an attached risk to every property you buy into. In the end, the goal is to protect your initial capital while securing consistent growth. Simply put, look to sell the real estate for more than what you paid for it.

You can build on the asset’s value by renovating or upgrading it, such as adding a patio or installing marble countertops. Have a target return on investment in mind and stick to that valuation.

Once property value reaches that point, liquidate and move on to the next property.

Investing in real estate has many advantages – liquid and consistently stable market, a diverse range of assets to choose from, and overall low risk compared to other assets. Use the aforementioned steps to start building your portfolio.

image credit: Pixabay

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