Simply put, real estate investment means earning profit through rental income received from a tenant occupying a property owned by an investor, while allowing the property to earn value during the time the investor holds it. This definition may make real estate seem a simple investment, but in the case of a beginner, there is more to it than it appears. There are a number of aspects that need to be considered in case of learning real estate for beginners.
The goal of investment is to ensure a return on investment to offset the risks associated with investment including tax liabilities and costs of owning the real estate such as utilities, maintenance and insurance which involve learning real estate for beginners.
Before proceeding with real estate investment, investors should be clear on the purpose of their investment. It is the first step towards any investment as a clarity on the purpose of investment will go a long way in determining how an investor moves through the process. Therefore, the investor should know the type of property to invest in, the current financial position, and the amount of money that can be released towards the investment, credit score, the places to invest in and ways to finance the investment. Only by achieving clarity on these factors, an investor should proceed with the real estate investment plans.
Financial position
Considering one’s financial status in detail is crucial before proceeding with investment. It will provide the investor with the data to determine the feasibility of an investment. It will also indicate the amount of money available to the investor for buying a home. It should be noted that buying a property is a big investment decision and should be based on feasibility and not involve emotional aspects. Investors should carefully consider their debts minus the value of their stocks, bonds, equity and other investments before committing to the investment.
Purchasing power
It is important to carefully consider one’s purchasing power before making real estate investment. Any errors in this may prove to be costly over the long term. It may especially have serious consequences if the investor is in the middle of an investment. It is possible that an investor qualifies for more financing than previously anticipated. Eligibility to access more financing means that an investor can potentially buy more properties, which in turn means increased return on investment, while adding more assets to one’s portfolio.
Financing strategy
In order to determine the best possible financing strategy, investors should be well aware of their net worth. The knowledge of one’s financial worth is necessary to accurately determine the ways to finance the investment. It is needed to determine the amount of investment that can be made which may also include the type of properties that an investor can buy. A knowledge of one’s financial worth is important in order to decide whether a single family home is appropriate or a multifamily home will be a better option. It is also necessary to identify the type of property for investment in terms of the condition of the property. An investor may buy high quality home, a home that needs renovation, new build homes, etc. depending on the financial strategy suited for the purchase.
Purchase strategy
Defining a purchasing strategy is necessary before investing in real estate as an investor can buy one or more properties for the same amount of money. It really depends on how to invest across multiple options. A well-defined purchase strategy will play a big role in identifying the right property at the right location. Investors have the choice to invest their money in one property by buying one property with cash or spread the investment across real estate rental assets by making the required 20 per cent cash down payment. Similarly, is with the mortgage repayment. Either the investor can use all the cash flow to repay one mortgage at a time or buy one property and save the cash flow as savings for buying the next property. This way, investors can achieve high cash flow as well as acquire multiple properties.
Investment property type
It is necessary to align the goal or purpose of the real estate rental investment with the right property type. For example, it should be identified whether the investment goals are in line with buying an apartment, townhouses, condos or houses. The purpose of investment should be to choose a real estate investment that will meet the purpose of the investment.
How to proceed with the first real estate investment?
Home viewings are a must before moving ahead with buying a particular home. This should include detailed viewings of the property that an investors may want to buy. It should also include the inspection of the neighbourhood where the property is located. Make sure that the property is in a good condition and requires minimum levels of renovations and repairs, if at all.
Appraisal
Property appraisals are important as they are necessary to determine the value of a property. Property appraisals are extremely helpful as they analyse the past, present and expected future value of a property. It gives an idea to the owner and the buyer about the capital of the property. This plays an important role in determining the rental income of the property.
Landlord policy
Getting a landlord policy is essential as it protects the investment throughout its tenure. It is an insurance policy which covers wide range of potential damages to a property. Depending on the level of insurance plan, the insurance covers a number of property issues such as accidental damage to the property which may make the property uninhabitable for some time. In this case, the insurance covers for the alternative staying arrangements for the tenants while the property is being restored.
Contingency plan
Contingency or backup plans are a must for any investment. They are a hedge against any unexpected turnaround of events. Investors should have sufficient financial reserves in order to cover void periods at the property as they look for their next tenant. Such reserves will protect from defaulting on loans, meeting unexpected emergency repairs etc.
