Over 5.5 million existing homes and 690,000 newly-constructed homes were sold last year, according to NPR. Besides a good location, quite a few other factors play a role in making a real estate investment a success. If you are looking to invest in residential or commercial real estate, here are six tips to get you started in the right direction.
1. Read Up On Leverage, Market Cycles, And Liability
Leverage can be a two-edged sword with real estate investment. On the one hand, it allows you to invest in more properties than you can afford to otherwise. On the other, it can lead to negative cash flow if the value of the property falls. However, the real estate market runs in cycles, so if the long term outlook is positive, then it's likely that you will recover your losses.
A key real estate investment strategy is to look for recession and early stages of recovery, so you can buy low and sell high. Regarding liability, you would want to minimize it by using a limited liability entity (e.g. a limited liability company or partnership) instead of holding them yourself.
2. Check Your Creditworthiness
A good credit score can be decisive when securing an investment from a lender. A credit score of 700 is a standard requirement these days, according to recent data. You can get your credit scores from a credit counselor, an online credit score service, or a credit reporting company, according to new studies.
3. Thoroughly Research Locations
“Location matters” or "location, location, location" is something you’ve already heard many times. This overused line holds weight regardless of the size and type of property your investing in. Use your local listing services as well as online resources to find suitable deals. Take your time with their research as you may be getting a good return on your invested time.
4. Grow Your Network
Networking can give you access to the right people and, consequently, the right investment opportunities. Join a real estate club or online groups to network with different people working in the industry. Find out how others are investing in real estate and why. Follow discussions about the local market and about opportunities beyond the local. The club or group may also have courses for beginners that’ll help you understand the business.
5. Diversify As You Grow
While there is merit to starting small and in a location that you know, you should also keep an eye on investments in other places. Diversifying your portfolio across different localities my help you better deal with volatility in the local market. Also, as you grow, make sure you maintain your properties well, so tenants leave good reviews. Be mindful of small but important matters like routine maintenance of appliances.
6. Have A Solid Exit Strategy
Consider your exit strategy before purchasing the real estate property. If you're starting with limited capital, then consider investing in a property that has multiple uses, so you don't lose money in case your exit strategy fails. For example, consider if the resale market doesn't go in the direction you anticipated, could you profit from renting the property.
Rocket Your Real Estate Investing ROI
Investing in commercial or residential property can be a risky endeavor if you don't know what you are doing. Keep these 6 real estate investment tips in mind to ensure that you have a positive return on investments.
