So, you want to go into real estate?
The industry is a great way to future-proof your assets for later life. But how do you get started?
This post should highlight what you need to consider when looking for your first real estate property.
Finding your first real estate property
Location is key
Finding the right location to invest in real estate is key to your success. It’s one of the most important factors to consider when trying to profit from owning or flipping property.
Properties near good transport links, amenities, and outdoor green spaces will naturally have a higher profitability than those seemingly in the middle of nowhere.
If you’re looking for commercial property to start your portfolio, it might also be worth taking a look at locations with warehouses or tax-exempt areas that will tempt new businesses.
Foreclosures are particularly good for investors who don’t mind a little DIY project. These properties are typically much cheaper than other homes on the market, but that also means they’re gone incredibly quickly too.
If you find a foreclosure that takes your interest, it might be better to look for private lenders, as these tend to clear the funds much quicker than applying for a mortgage – giving you more chance of winning the sale.
Understanding the value of a property will be integral for knowing how much funding you might need, the listing price, and how much taxation will be required.
A good way to understand a bit more about how much a house is worth is to do a sales comparison. Then, look at other, similar properties in the same location and see where listing prices range.
If you’re looking to lease out the property, you might also want to look at the types of income people are earning in the area to have a better idea as to where you’ll need to pitch your rent costs.
All of this should help you determine whether or not the property is worth investing in.
Without knowing what exactly you’re going to do with the property, you can easily find yourself investing in all sorts of properties that are difficult to use or sell on.
If you’re using a mortgage to invest in your first real estate property, not having an investment purpose could leave you in serious financial distress while trying to pay back the fees.
There are four main reasons to invest, which you should consider carefully before buying any property:
- Buy to use personally
- Buy to lease
- House flipping (short term, quick buy to sell)
- Buy to sell (longer term)
Profit and cash flow projections
Another key element of the preparation phase is to estimate your cash flow and profit projections. Cash flow is any money that’s left over after all expenses have been paid. Investors should always be looking for a positive cash flow or a good return on investment.
When creating your projections, try to calculate the following:
- Cash flow from renting the property
- Long term price appreciation for selling in the future
- Benefits of depreciation
- How much would renovating before a sale increase profits?
- Would the value appreciation outweigh the mortgage? (Cost-benefit analysis)
Understand funding options
If you’re lucky enough to have all the cash for your first real estate investment, this shouldn’t apply to you.
However, for those looking to create their real estate portfolio with the help of a mortgage or private lender, you may want to be careful with over-leverage or signing up to any loan without having a good idea about your future income.
You will also need to keep your credit score in mind, as this will determine what funding options are available.
There are usually three main ways to fund a real estate investment: A mortgage, personal funds, or searching for hard money lenders near me.
Depending on how guaranteed your future income is, will help you determine the best option for you.
For mortgages, you want to try to find the best and lowest interest rates on good terms. Several options like fixed rate mortgaging, interest-only or zero deposit required options may help you get on the property ladder.
That said, all of these have their own downsides that are certainly worth researching in depth.