Investing in real estate is one of the smartest money moves that an investor can make. Whether it is about investing in a house for rental purposes or buying multi-family residential property, real estate is a stable and safe investment. However, real estate investing for beginners may seem a bit intimidating, but it’s really not so. A knowledge of just some key fundamentals should see through the initial process of real estate investment.
Along with other property investment vehicles, real estate can be part of an effective plan for retirement. Whether it is about real estate investing for beginners or the experienced, the fundamental requirements are the same. As the primary difference between the novice and the experienced lies in knowledge about the sector, professional assistance can alleviate this drawback. Real estate investing for beginners can be a success if implemented through informed decisions at the right time.
Establishing real estate investment goals
The first step towards real estate investment, just like any other investment, is to define the investment goal accurately. It is necessary to set realistic goals and expectations in order to keep the investment decisions on track. Once the purpose of investment, goal, short-term objectives and the ways to achieve the target have been identified, set a time frame for each of the short-term objectives and the overall goal. Finally, stick to the timeline and the goals at any cost. Realistic goal-setting and adhering to the plan is especially important in case of real estate investing for beginners as some of them may not have the additional financial resources or the required backups to support unexpected or adverse circumstances.
Define the current financial status
Take a look at your financial status. This should include factors such as net worth, credit score, current income, mortgages, current and expected expenses and taxes. Figuring out these will reveal your financial health and determine if real estate investment is the viable next step. This is an important step in case of real estate investing for beginners as it is their first real estate investment. If all the variables are favourable to real estate investment, it is time to start planning further.
Evaluating the personal purchasing power is the next step which is essential for a successful real estate investment strategy. It is important to calculate things accurately at this stage and take into account all the available data since it may prove to be too late if new and large expenses, which have not been figured out earlier, come up during the real estate investment implementation stage. This may disrupt your budget and incur potentially big losses.
Leverage the investment
In real estate, the term “leverage” refers to the ability to leverage an investment property by creating the opportunity for someone else (i.e. tenants) to pay off the property’s loan. This will allow for higher ROI because it will involve a smaller down payment. The smaller down payment frees up additional cash that can be used to purchase other real estate investment opportunities.
Financing can help investors discover their purchasing power. It is possible that the investor qualifies for more financing than anticipated earlier. In case the investor qualifies for additional financing, more cash is freed up which means more investment opportunities, which may be in the form of more rental properties, resulting in higher return on investment and a wider investment portfolio.
Real estate financing strategies
Once the above-mentioned steps are complete, the investor should pay attention to the real estate investment financing strategies. Figuring out the net worth is essential because this information is necessary for identifying the right financing strategy and accurately determine ways to finance the real estate investment. The investor should be clearly define the funds to be used for the down payment and whether the funds are liquid cash. The investor should work on the current and projected personal financial situation to identify the type of loan which suits the purpose of real estate investment. The search for the right financing strategy ends with identifying the type of properties the potential investor is eligible for, which include single family or multi-family properties. Apart from this, these type of properties can be further classified into high quality homes, homes that need to be renovated, newly built homes etc.
The real estate investor should define the purchasing strategy on clear terms. This is possible only after identifying the goal and the purpose of investment. A clearly-defined goal and purpose of real estate investment will help the investor in finding the right opportunity. For example, implementing the right purchasing strategy may involve deciding on buying a property worth the cash available for investment or splitting the amount across multiple real estate investment options. If the investor decides on multiple purchases, then the next step is to decide on the mortgage repayments. The investor may either choose to repay all the mortgages simultaneously or repay one mortgage at a time. Alternatively, the investor may buy one property and save for the next home. This strategy helps real estate investors acquire multiple properties, while enjoying a monthly cash flow. If the investment property is not the only source of income for the investor, which means there are two sources of income for the investor which allow for more savings over a relatively shorter period of time.
Deciding on the type of investment property to buy
Investing in real estate is not simply about buying a property. As there are different types of properties to invest in, it is necessary to know which type of property best meets the requirements for investment. The investment may be in the form of homes, apartments, commercial properties or condominiums for the purpose of booking profits through either renting or reselling.
Therefore, it is necessary for the novices to engage in due diligence before taking the leap into the highly competitive real estate market. While real estate investing for beginners may be difficult due to the very nature of their first real estate investment, it may ensure a stable rental income and high capital growth over time if implemented after careful considerations of the various aspects of the investment.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.