For some people, buying property is simply a way to secure a place to live. For many others, real estate might be a way to make money. The key, experts say, is to set emotion aside and approach the transaction like a business, with a clear plan, an accurate picture of cash flow and an exit strategy. The smart real estate investor stands to make significant gains – but it’s important to understand that the road to success requires solid footwork.
1. Determine goals.
Do you want to generate a relatively stable income stream or one-time gains with a shorter-term commitment? How much risk are you comfortable with? The answers will help determine which type of property investment strategy might be right:
- Single- or multi-family residential rental property
- “Fix-and-flip” residential property
- Commercial rental property
- Land development
2. Assess investable assets
An investment property may require a down payment of up to 20 percent or more depending on the type of property. In addition, the investor may need to show several months’ reserves.
3. Know the neighborhood.
It’s all about location, location, location. Sound familiar? It should. The same factors that make a home enticing – low crime, good schools, proximity to amenities, increasing property values – make a rental or resale property attractive, too.
4. Run the numbers.
The mortgage and property taxes are only part of the expense equation. Maintenance, repairs and capital improvements all need to be taken into account, as does insurance. Some lenders may require a policy to cover loss of fees when a rental property is vacant. And consider the cost of doing business, from office supplies to professional fees. Weigh all these against potential revenue from rental or resale.
5. Engage experts.
Speaking of professionals, real estate investment often requires a team. From contractors and landscapers to accountants and lawyers, it pays to establish relationships with experienced, reliable service providers. For rental properties, it may make sense to hire a professional property management service – but expect to pay about 10 percent of monthly rent as a fee.
What to tell clients:
Current pricing levels and low interest rates make real estate investment particularly attractive. With your knowledge of the local market, you can help your clients find investment properties. Encourage clients to obtain mortgage pre-approval to smooth the negotiating process, and to speak with a Mortgage Advisor who can guide them through the nuances of real estate investment transactions.
- “10 things to consider before buying your first investment property,” by Guest Contributor, RealEstate.com
- “Financing Your First Investment Property,” by Gerri Detweiler, Credit.com
- “Now is a great time to invest in a rental,” by Tamara E. Holmes, Bankrate.com