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Important Things to Know BEFORE Deciding to Invest in Real Estate

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Real estate investing can be one of the best ways to earn passive income or create intentional wealth for your family and future. However, like any investment, real estate can have its downfalls and you can experience losses, especially if you are a beginner and don’t understand how to invest in this market safely. Over the long term, real estate asset management should allow your properties to grow in value and increase in income, but only if you learn how to lower your risk and make careful investment decisions.

Learn About the Different Kinds of Real Estate Investing

Before you decide to start investing in real estate, one of the first things that you should learn is about the different kinds of real estate investing. Not all real estate investors purchase the same kinds of properties or make their money in the same way. One kind of real estate investing, renovating and reselling (also called flipping) has been popularized on television lately. This is not the only kind of real estate investing, however. 

Another popular kind of real estate investing is purchasing rental properties. Other strategies include purchasing commercial properties, raw land, or vacation home properties. Learn about the pros and cons of each kind of real estate investing and the amount of knowledge and capital needed to get involved. You should also learn how passive each kind of investing is and consider which appeals to you the most. Many people begin real estate investing by purchasing rental properties or flipping because they can be the easiest properties to get started with.

Find Ways to Educate Yourself

Find different ways to educate yourself. Make sure that you are learning from reputable sources such as experienced investors or well-known books or courses. Beware of the online guru who makes more money from his course than real estate. You want to learn from someone who is actually investing in real estate and who has years of experience. 

Besides learning from an expert, there are other ways to educate yourself on the different facets of real estate investing. You can learn about construction and renovation from contractors. Learn about funding and the different kinds of lending available by talking to brokers or local investors. Learn about the home buying and selling process by talking to a real estate agent and learn about property management by talking to local investors or property managers.

Learn How to Evaluate Properties

Learn how to evaluate properties using calculations like the “One Percent Rule” or the “Seventy Percent Rule”. While these rules are only guidelines, they can help you save time when looking for properties by helping you choose which ones to rule out and which ones to evaluate further. You need to learn how to evaluate properties for rental income potential, estimate renovation costs, and calculate potential resale value. You can’t do any of these estimates on your own, at least not at first, so this is where you will need to have a trusted team to help you.

Build a Team of Experts

Any time you are starting a business or a new venture you want to have a team of experts on your side. You want to hire people who are smarter than you and know more than you. For real estate investing you will want to build a team of experts on both the real estate and the construction side. You will want a real estate agent or agents who understand you and your needs and know the kind of properties you’re looking for. You will also want to have a contractor or multiple contractors who you can call when you have questions about a property and how much it may cost to repair, and who can visit potential properties with you. You might also want to consider getting to know inspectors in your area as well as other professionals such as various lenders, appraisers, property managers, and more. The more experts you have on your team the better.

Always Have More Than One Exit Strategy

Even though you are probably going to go into real estate investing with one or two types of investing in mind, you need to understand other kinds of investing as well. This will ensure you always have more than one exit strategy in mind. For example, you may be purchasing properties to hold them as long-term rentals. However, you also need to have other exit strategies in place that can allow you to make money with that property in case you can no longer use it for that purpose. In many cases, your alternative exit strategy will simply be to sell the property. With appreciation and improvements, you should be able to sell any property you invest in without taking a loss. Other exit strategies may include commercial leases and short-term rentals.

Be Honest About Your Skills and Abilities

When you are getting started with real estate investing, you need to be honest about your skills and abilities. Don’t be afraid to ask questions and admit that you don’t know things. People around you will admire your honesty and be willing to help you. You also need to be honest with yourself about your skills and abilities. Don’t assume that you will be able to renovate a house on your own if you have never done it before. Don’t assume that you will be able to easily find funding. However, if you go into the process willing to learn, you can find out how to get funding and how to renovate a house. By being honest about your skills you will get farther with less discouragement.

Don’t Let Fear Stop You

Finally, face your fears. At some point, you will have done all the self-education and research you can do from the outside, and it will be time to take the leap and make your first purchase. Don’t let fear stop you at this stage or you will never move on. You might not make the perfect choice for your first property and will definitely make mistakes, but you will be ready to try again and improve on the next purchase. The first property is the hardest, so when you are ready, don’t let your fears stop you.

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