Real estate is one of the most secure ways to invest and grow your wealth. Even in the current market, where nearly everything is over-priced, there are still plenty of ways to invest your money and watch it grow exponentially in the real estate market. If you’re new to investing, then keep reading. Here are the best real estate tips for new investors looking to break into the market for the first time.
Why Invest in Real Estate?
Real estate is one of the safest types of investments. It’s nearly impossible to lose and although it may take time to see some real results, real estate investments can help you grow your wealth exponentially. Real estate investing can be a retirement plan for you, as long as you make smart decisions and get informed before you dive in. Real estate can be a much safer way to invest money, but it still requires you to make calculated decisions. You have to think it through, analyze all the information, and make the right choices.
Anyone who owns the property may fancy themselves as a real estate expert, but this isn’t always the case. In many cases, people make the wrong choice based on information they got from friends or family. There are also a ton of myths circulating out there that can definitely harm your ability to make money with a real estate investment. To be sure you make a wise investment, keep reading to find out what myths we’ve debunked so you don’t fall victim to them.
Debunk Real Estate Investment Tips
There are so many real estate investment tips out there that just get in the way of new investors actually making any money. Here’s a closer look at some of the most popular real estate myths that you can stop worrying about today.
You Need a Lot of Money to Invest
Depending on where your property is located and how much it is valued at, you don’t need to be a millionaire to begin investing. However, you do have to be smart about your money. Putting even the tiniest bit of cash aside every month for a couple of years can help you amass enough of a down payment to get yourself into the market.
Overpaying is Normal Right Now
This is a myth real estate agents would absolutely love you to believe. But trust us, just because the market is hot, doesn’t mean it makes sense to overpay. The point of an investment is to make money. If the investment doesn’t earn you money in the first five years, it isn’t a great pick. If the price won’t come down, then it’s better to pass on the opportunity and wait for the next one. You may be waiting for a while, but it’s always safer to wait. They say you can never lose with real estate and this is mainly true. If you buy at a reasonable price, you won’t lose. But if you overpay, you’re starting off at a loss already.
You Have to Be Able to DIY Everything
While you can certainly save a buck if you’re able to complete repairs to your property on your own, it doesn’t mean you can’t invest if you aren’t handy. You will have to sacrifice some money on to repair people to maintain your property over time, but if you choose a building that isn’t 100 years old, you will find that repairs are not that expensive. If you need to hire a plumber, do it. Don’t attempt to do it yourself if you’ve never done such work before because this just may cost you more in the long run. If you damage the property, it’ll cost you way more.
Building Evaluations Aren’t Necessary
This couldn’t be further from the truth. Never skip on this part of the process. If the seller is in a hurry and you may lose the deal, then you’re better off losing it. A seller in a hurry is already quite suspicious. Skipping on a proper evaluation can get you stuck with a money pit that will be the furthest thing from an investment. This step is so important that we also recommend you find your own independent contractors to complete it. Don’t take someone else’s word for it, especially the seller or selling agent. Hire your own evaluator to take a good look. If the building is older than 20 years, you should also hire a structural engineer to evaluate the property. This can cost a touch more up front but can save you from big financial problems in the future.
Don’t Increase Rents Often or You’ll Lose Tenants
You should be careful about increases, but they should never be skipped. Be fair to your tenants. As expenses increase, rents must also increase. After all, you’re there to turn a profit. While you shouldn’t abuse this, you should continue to make incremental increases to tenant rents annually. If you fall behind on the rents and your expenses grow faster, you will be in deficit. Then you can’t increase your tenants by a hundred of dollars a month to compensate. You’ll be stuck. Instead of huge increases, choose small but regular increases. Your building value is directly related to your rents. If you keep rents low, your building value will also be low and when you sell it, you won’t walk away with what you thought you would.
Legal Warranties Don’t Matter
This is a tricky one. Yes, you can buy a building without legal warranty. It doesn’t necessarily mean something is wrong with it. However, a building without legal warranty sells for below market value since it’s a risk. If you get a great deal and buy it without a legal warranty, then you will also have to sell it below market value for the same reason. To maximize your investment, you want to buy something safe and secure that will bring you back a great return.
ROI Is Long-Term
Nope! You don’t want to wait 25 years to make dime on your investment. You should be able to cover your expenses and turn at least some profit in the first few years. A good ROI is about 8% to 10%. If your calculations show you that you won’t get that much in the first few years, then pass on the investment. You’re not investing to be charitable. You’re doing so to make money.
Real Estate Investment Tips for Newbies
Now that all of those old myths are out of the way, you can actually start investing in real estate wisely. Here are some of the best tips for real estate investment for new investors.
Diversify Your Investments
When getting into real estate, don’t feel as though you need to stick to one type of property or one single neighbourhood. Like any investing, the best way to expand your wealth is to diversify your investment opportunities. Some buildings may be more profitable one year compared to another and vice versa. Diversifying your investments will help you maintain profits at all times and minimize your risk of failure. If you made one bad decision, it’s ok. If you made the same bad decision 10 times, you’ll feel it.
Find Trusted Advisors
The best way to help maximize wealth and get into the real estate market is to find trusted professionals who can help guide you. The easiest way to do this is to find people who are objective. A third party who has nothing to do with the seller of a property you’re interested in is a safe bet. If you find advisors you can trust, build a long-term solid relationship with them so you will know you always have someone to count on. Your repertoire of trusted professionals should include financial advisors, notaries, realtors, and mortgage specialists.
Once you find these trusted people, don’t think that means you don’t shop around. You always shop around for better rates. The bottom line is your business and the professionals you give repeated business to should always do their best to offer you the best terms. If not, then you move on. If they are aware you are always on the lookout and don’t simply trust them blindly, they will work harder and better for you.
Do Your Homework
Choosing a real estate property isn’t solely based on value. There are many factors to consider. Is the property located in a good area? Are the current tenants good quality tenants? If it’s a residential property, is the place located near amenities? If it’s a commercial space, are they located in an area that is attractive to businesses? You should ask to see the financial records of the property from the last three years. Check to see if there have been long-term vacancies and what cost of rent most tenants have been paying.
This step involves a little industry experience, but if you start with these points, you’ll quickly learn what matters when choosing a property. Look at a listing for a space in the building. As a tenant, would this place interest you? Why or why not? This type of information can help you figure out whether or not this is a quality investment.
Invest in Proper Maintenance
You may want to save a buck, especially in the beginning. So, skipping out or cutting down on maintenance costs may seem tempting. But this isn’t a great plan. The sooner you fix an issue, the less it will cost. If you let a problem linger, it can get much worse and even more costly. It can also upset your tenants, resulting in legal action against you. If you want to sell your property and it is overwhelmed with damage, the new buyer will not pay you what you’re hoping for. The best way to maintain the value of your property and save money in the long run is to go ahead and fix what’s broken immediately.
Save for the Unexpected
The general rule of thumb is to save 10% of your annual rents and leave it in your account. This is to cover you in case of emergency expenses. It’s a good practice to get in the habit of and it can save you lots of time and money in the long run. Whether your property is old or brand new, it’s safest to save up for the unexpected so you’re never caught with a huge unforeseen expense. This can keep you from having to return to the bank to ask for more money.
Build a Network or Join One
A network of real estate investors is a good place to go for help, information, and good tips. If you know enough investors to make your own group, that’s great. If not, you can find local real estate investment groups in your area. You can find support, make contacts, and even save yourself from making huge investment mistakes. The combined knowledge of all of the investors is the group is beneficial to everyone who is a part of the group. Everyone can learn from one another.
Prepare for Vacancies
No matter where your property is located or how great of a track record they have, you should always plan ahead for vacancies. At some point, this may very well happen. Your other rents should be able to help keep you afloat for at least six months if you have a 20% vacancy rate at any given time. If not, then vacancies may mean you will need to dip into your own pocket to keep the building. This is something you really want to avoid. The goal is to make money, not keep spending. So, when you’re calculating the profitability of a building, estimate 20% vacancies for six months and see if you can still pay the expenses. If you can, then go ahead with the purchase. If not, the move along to another property instead.
Negotiate Terms
The terms of the sale are just as important as the sale price. Be sure to read the terms carefully and speak up if something doesn’t seem right. Even if it’s a great deal, bad terms can sink a deal. You have to make sure you are protected in every way before you go ahead with a purchase. Consult your own independent attorney, your own notary, your own accountant, and your own realtor to see what the terms mean and how they can affect you after the sale. Many people think terms are set in stone, but they are not. You can negotiate terms just as easily as prices.
Understand that Your Investment is Your Business
Your investment isn’t just something that you hope will bring in some money in your golden years. It’s a business and you should run it as such. To ensure you are successful, work with and hire knowledgeable people and make calculated decisions. If you decide on the go and make quick decisions, you are destined to fail – just like you would with a business. Instead, take the time to think everything through so you make the right choices.
How Do I Get into Real Estate Investing with Bad Credit?
If you have bad credit, it can be an uphill battle to get a traditional banking institution to loan you any funds. Even for a safe investment like a property, banks are likely to refuse you if you have bad credit. If you go to a direct lender instead, you will be more likely to get approved. Though borrowing money means debt, it’s a good debt to have. It’s for investing in something that will greatly increase your wealth in the long-term.
Direct lenders like BHM Financial, CashIn24, Trufco, Canoco Consulting, or Cash Loans Canada Inc., can help you secure a loan even if you have poor credit. Direct lenders never take your credit score into account. Instead, they look at your income and your investment opportunity. They can help you secure a loan so you can start rebuilding that credit today and get yourself on the path to financial freedom sooner rather than later.
The old adage, “It takes money to make money,” is somewhat true. So how do you get started? A loan from a direct lender can help you get on your feet and start building your real estate investment portfolio today. Making money and achieving financial freedom doesn’t happen overnight but it begins with a single step in the right direction. If you’re interested in delving into real estate investment, contact one of the direct lenders mentioned above. They can help you understand how real estate investments work and provide you with some in-depth financial knowledge to help you avoid making costly mistakes.
As you move forward in the real estate world, remember: take your time, think it through, and trust your gut. If you feel as though you’re being pushed into a sale, stop. Good investments are sometimes hard to come by but if you are patient and willing to wait for the right one, the perfect investment will make its way to you before you know it.