These five tips will help ensure that your first real estate investment is a wise one.
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Lately, investing in real estate has become an increasingly attractive option and it’s no wonder why: Our already low mortgage rates are expected to drop further, home prices have begun to simmer down, and the demand for rentals appears to be very strong.
Maybe you’ve been eyeing the opportunity to purchase investment property, but you’re not sure what’s involved in the process, much less where you need to start. If that’s the case, you’re in luck: After speaking with some experienced real estate investors, I’ve gathered five simple tips that will help you get started:
1. Don’t stick to your own backyard. Many struggling investors fail to get out of their own neighborhood (and comfort zone) when searching for homes with investment potential, which, in turn, cuts into their profits. Sticking to the areas you know well could cause you to miss out on opportunities in emerging neighborhoods where the potential for growth is higher.
2. Use the golden (or 1%) rule. A good rule of thumb for real estate investing is to look for properties that can produce monthly rents greater than 1% of the property’s purchase price. Let me give you an example: Suppose you’d like to buy a property valued at $200,000, and you calculate that the rents you collect each month amount to more than $2,000. According to the 1% rule, that’d be a worthwhile investment.
3. Don’t over-improve your property. You might feel the need to turn your investment into a picture-perfect property, but it doesn’t have to look like a Pinterest photo shoot. Instead of sinking money into the property to convert it into your personal dream home, go with middle-of-the-road fixtures. This will save you time, money, and even aggravation.
If you already live in a single-family home, use your direct experience with this sort of property to your advantage and look for something similar.
4. Consider the type of property you want to invest in. As a rookie investor, consider starting small and buying a single-family rental. These properties tend to bring consistent appreciation, and remember that finding a good neighborhood to buy in is key to finding good tenants. If you already live in a single-family home, use your direct experience with this sort of property to your advantage and look for something similar.
5. Understand the associated tax benefits. It pays to be familiar with the tax benefits that come with real estate investing. They include deductions for depreciation, mortgage interest, and maintenance. You might reap additional benefits from investing in a qualified plan, like a self-directed IRA.
These five tips will prove to be very valuable, but as I mentioned, they barely scratch the surface on what you need to consider before buying an investment property. If you’re giving serious consideration to becoming an investor, go ahead and click here to see a complete list of available properties.
And if you have any questions related to this topic or real estate in general, please let me know. I look forward to speaking with you!