Investing in real estate is always risky, but if you learn and implement some best practices, you can save yourself the devastation of a bad investment. There’s a lot you need to learn before you purchase your first investment property. It’s essential that you educate yourself on what to do, how to do it, and mistakes to avoid.
Unlike the stock market, you must factor in the financing portion, legal issues, and the due diligence involved with each property. Before you go hunting for your first property, learn some essential tips for investing in real estate and check out different properties for sale on MLSLI.com, a multiple listing service that shows the public listings in your area.
Flipping houses isn’t for everyone.
Flipping houses, or ‘fix and flip’ investing, is a riskier variation of investment properties. Purchasers are looking for a house that needs repair in a fantastic neighborhood. The house that is priced low compared to the rest of the street because of how much work it needs. Fix and flip investors aim to repair a home in as little as 90 days to place it back on the market in the hopes of a return on investment (ROI) that is 20 percent or higher. When done right, flipping is a lucrative line of business. When done wrong, you’re looking at months of work that never pays off.
Fix and flip investing isn’t for everyone. You need to factor in the downsides. Many projects go over their budget and time allotment. Every month you still own the property you’re decreasing your potential profit. And chances are high you’ll get a building with more wrong with it than you knew before the purchase. Fixer-uppers can be expensive, so make sure you do your homework before you invest.
Find wholesale properties.
You never want to pay full price for a property. If you pay the sticker price, your profit potential is low. Wholesale properties are fixer-uppers in nicer neighborhoods that are discounted. You can fix and flip the property for a much higher ROI than a house for which you paid full price.
Do your homework and run the numbers first, though. You need a general idea of your rehab cost to determine if the discounted price is worth it.
Invest in a buy and hold property.
Buy and hold investments are where you purchase a property with the intention of holding onto it for some time. Unlike fix and flip investments, buy and hold properties are intended for long-term use as rentals. Beginners to real estate can start with a buy and hold property to learn the ins and outs of investment.
While they sound like a secure investment opportunity, buy and hold properties still come with risk. Landlords continually have issues with tenants not paying rent, you must purchase rental property insurance, which is an added cost, and you must either manage and maintain the property yourself or hire a third-party company to do it for you, which is another added cost.
Research the tax benefits.
There are significant tax breaks for property investors. Their goal is to entice more investors into the market to ease the housing burden on the government. The most prominent tax break is the depreciation write-off, which allows you to write off the depreciation of the building on your taxes when you purchase land that includes a structure. In general, you can write off the depreciation of a residential building over 27 years old and a commercial structure that is over 39 and a half years old. Also, the government considers your real estate investing as a business, so you can write off mortgage interest, insurance, and any related maintenance expenses.
Always consult with a tax advisor for more specifics.