6 Things You Need To Do Before Investing in Real Estate

Have you ever considered investing in real estate? Real estate investing, according to famous American financier Russell Sage, is “the basis of all security and the only indestructible security”.

It is the only imperishable asset that continues to increase in value over time. 

In other words, it’s the best and safest way to build wealth.

Investing in real estate will secure your wealth in a safest way.

However, learning how to invest and make the most out of your money is easier said than done. Becoming a property investor can be a challenge for many people, especially for those who have no prior experience in selling or marketing. So to get started, we’ve complied a list of some of the best places to start when looking to invest in real estate. 

1. Start learning everything you can about real estate investing

Knowledge is your sharpest and most reliable weapon in the real estate battlefield.

Learning everything about real estate investing will ensure your win.

Like other forms of investment (e.g. stock market, peer-to-peer lending, high-interest savings) there are dozens of different ways to make money in real estate. 

The question is how do you know where to focus and how do you determine the strategy that’s right for you?

Let’s take a look at some of the tried and tested real estate investment strategies today. 

  • Buy and hold rentals
    Ever dreamt of becoming a landlord? Buy and hold rentals are a long-term investment strategy that allows you to make money through monthly rental income. With rental properties, you can increase your income with the property’s value over time. This is also the most common form of real estate investment despite it requiring lots of time and responsibility. As a landlord, you not only have to be responsible for your property, but also the living conditions of your tenants. If you like the stability of long term, predictable income. This is a great option! 
  • Buy and sell
    Perhaps you’ve heard of “house flipping”? In “buy and sell” real estate investing, you earn money by buying a property at a low price, fixing it and selling it for profit. This is a short term investment strategy that allows fairly high returns quickly. If you’re handy, organized and are hard working it may be the perfect strategy for you. 

"House Flipping" can get you high returns in a short time.

  • Wholesaling
    Investing doesn’t always mean you need to have a large sum of money first stored away. In wholesaling, all you need to do is 1) find a seller whose property is not yet on the market and 2) find a buyer who wants a property in the same area. It’s essentially “real estate arbitrage”. To be successful here, you have to network and create a pool of contacts for potential sellers and buyers. If you’re the social type or are well connected, this may be a piece the ideal choice! 

2. Consider if you should clear your debt first or start investing right away.

If the risk is low and everything is in your favor, it makes sense to invest rather than pay off a loan.

This is crucial to your investment success. It might seem wiser to clear your debt first. After all, a debt-free life means reduced risk, stress and overall better mindset to handle emergencies. However, there are times when investing can also be the better option.

It all depends on the return and risk. 

For example, if you know you’re going to earn a higher return from the investment than the after-tax interest of your debt, then you should invest. If the risk is low and everything is in your favor, it makes sense to invest rather than pay off a loan. 

Three Questions You May Want To Ask Yourself To Establish Your Priorities

  • 1
    Do you have an emergency fund?
  • 2
    What are your options if your investment fails?
  • 3
    What’s the rate of interest on your debt?

3. Study the experts

When you’re first starting off, it’s critical to read and follow the experts to learn from them and emulate their successes. 

Real estate investing is one of the most common form of investments that’s easy to understand, straightforward, and comes with great profit. If you’re confused, there are many books and experts on the subject. Remember that fewer mistakes means more profit and better financial gains. 

Get some great financial book and start learning from the experts about real estate investment.

If you’re new to investing and finance it’s probably best to start reading about general finance.

Here’s a short list of great financial books that are well worth your time and money

  • 1
    Money Master The Game (Tony Robbins)
  • 2
    9 Steps to Financial Freedom (Suze Orman)
  • 3
    The Savage Number (Terry Savage)
  • 4
    Rich Dad Poor Dad (Robert Kiyosaki)
  • 5
    One Up on Wall Street (Peter Lynch)
  • 6
    The Intelligent Investor (Benjamin Graham)
  • 7
    The Essays of Warren Buffett (Warren Buffet)

4. Consider location

Always personally visit the property you're planning on buying before making the final decision. 

Buying in the wrong location can mean failure from the very beginning. This is why it’s so important to personally visit the property you’re going to buy. You want to see for yourself the surroundings, the background noise, the overall environment. I recommend asking an expert or a local real estate agent before starting your property search.

here are some factors to consider when choosing location

  • 1
    Safety - You don’t want to purchase property in a violent, high-crime or chaotic neighborhood.
  • 2
    Schools and College - College towns are one of the best locations to buy a property. Aside from providing consistent rent throughout the year, houses in college towns also increase in value much faster.
  • 3
    Job Opportunities - People like to live close to their workplaces. Investing in a property that’s near the job market is a sure way to get consistent tenants every year.
  • 4
    High Population Growth - Places that have high potential of population growth are good areas to start your property search. Good neighborhoods have high growth potential which can attract buyers easily compared to properties in low-growth estates.
  • 5
    Walking Access to Public Transportation -  Properties near bus stops, subways, and train stations are great places to invest. People want convenience and walking to their daily commute is a priceless luxury for many.

5. Understand the costs

Investing is not a one-time purchase. You will have extra costs. Better that you should know about them first. There are property expenses that a lot of new investors still don’t consider, leaving them stressed when the bill comes. If properly estimated, these expenses can easily be planned ahead. So what are some of the hidden costs in real estate investing?

Before investing in real estate you have to consider ALL costs.

  • HOA Fees - Homeowners association fees are very common now in many properties. Before investing, ask your seller about HOA financial reports.
  • Property tax - Taxes vary from state to state and can increase at 3 percent every year.
  • Repairs, maintenance and lawn care - Before purchasing a property, make sure to have it thoroughly inspected for any issues in wiring, plumbing, and HVAC systems.
  • Circle
    Bad Tenants - Not all tenants can pay on time and handle your property with care, and this can cost you. It’s important to be selective and strict when it comes to your management rules.

6. Plan to diversify your real estate investment portfolio

Your real estate portfolio will have a lot of influence on your career and future opportunities. Smart real estate investors strive to diversify their investments for one important reason: risk management. 

Street with modern houses in a suburban area

One way to diversify your real estate investment is to invest in multifamily properties.

Ten years from now, do you still see your investments earning as much? How would you handle change and disaster in the local market? Diversifying your real estate investment not only improves your portfolio. It also keeps you safe from the volatility of local markets.

some of the best ways to diversify your real estate investments

  • 1
    Purchasing properties in other states and cities - This will help you acquire more available investments and opportunities.
  • 2
    Investing in multifamily properties - With multifamily units you can generate a more steady flow of income and alleviate the loss for vacancy.

Key Takeaways

  • Don’t start without basic real estate investing knowledge. Learn important investment strategies first.
  • Determine if you should pay your debt or continue with your investment.
  • Study the experts to find out the easiest path to success.
  • Consult an expert on location before doing your property search.
  • Understand all the hidden costs in real estate investing.
  • Don’t forget to learn how to diversify your real estate portfolio.

As with all things in investing, use good judgment when taking risks and accepting or turning down opportunities. Once you’ve done all the things listed above, you can start your journey towards building your wealth with the help of real estate.

Want To Learn More About Real Estate Investing?

Join MoneyHacks News FREE Today!