Real Estate Investment has a reputation for being “easy money” – this is sadly not the case. Real Estate Investment can be good money, but you will have to work hard to make it.
If that sounds appealing to you then here are 7 things that you need to know before you start investing in real estate:
#1 – Find a mentor
The idea of mentorship is very out of fashion these days, but it is an invaluable practice that thinkers, craftsmen, and business owners have been taking advantage of for centuries now.
As you start out in the world of real estate investing, we recommend that you find someone who is already established in the field and ask them to mentor you through the first 1-2 years of the process.
#2 – Establish your investments are a separate form of earning
Setting up business accounts can be a pain at the time, but when you have to start filling out your tax return you will realize that every minute spent setting up a bank account has saved you an hour of filling out tax returns.
Make sure that you set up a business account for your investments, keep track of all the money that goes in and out, ask for invoices from all contractors, and keep backup copies of all your important documents.
You may also want to consider investing with an online eRIT. When you compare different eREITs you will find the one that works best for you.
#3 – Do your research before parting with your cash
You will want to make sure that you know everything you possibly can about a house before you buy it. Dig deep and make sure that you know exactly what you are buying.
There are many people out there who are advertising less than desirable properties with the hope that someone will buy them without doing their research. You don’t want to make this mistake.
If you have a mentor they can talk you through the red flags and what to look out for when it comes to buying a property.
#4 – If you are renting out properties, start small
Smart investors and businessmen plan for the worst possible scenario.
We’re not saying that you should go into your investment thinking that you are going to make no money and find no tenants.
Instead, you should set yourself up so that even if everything does go wrong you will be able to survive financially.
When you purchase your first property, make sure that you could still afford to pay the mortgage on it even if you had no tenants. If that means buying a smaller house or flat than you had originally planned to, then so be it.
If you plan like this, you will never get yourself into financial trouble.
#5 – If you are flipping houses, resist the temptation to do up your first house too nicely
When you are flipping your first house be aware that there are some changes you can make that will increase the value of your property and some things that won’t.
For example, making the living room open plan will increase the value of the house. But spending your time and money painting the walls of the room a trendy color and hanging expensive curtains won’t. Be smart with your time.
It can be tempting to try and do everything, but you shouldn’t. You will only be wasting your own time and money.
#6 – For your first home, don’t risk it all
It is really tempting to purchase a really run-down home in an area that could soon be up-and-coming as your first investment.
But, doing that is risking too much. You are better off making a slightly less lucrative but reliable investment to start with.
For all you know, you might back the wrong house and end up with a $400,000 investment that you can’t get rid of.
Houses that make a good first investment are middle-class houses in an area that has stable house prices.
#7 – Not be afraid to ask
Our final piece of advice is to be open to taking advice from experienced people in the field of real estate investing. They are established in the field for a reason – they know what they are doing and what they have to say could save you from a bad investment or point you towards a great one.