You’ve decided to start your real estate investing journey. You know this career can provide you with great opportunities to both do something that’s interesting to you and generate a solid stream of income. Deciding to take that first step may feel exciting and overwhelming, and you may question whether or not you’re ready to take the plunge. The amount of information out there can often make knowing just where to start the most difficult barrier. That’s why we’ve created this useful list of tips for first-time real estate investors.
It can be difficult to go it alone, so get in touch with the investors in your area. Creating these contacts will grow the community of people you can turn to when you have questions or need help. Many of the real estate investors, contractors, and landlords in your area are happy to show you the ropes, explain how things work, and give you a sense of the local market. Not only is their knowledge invaluable, but you’ll also open the door to working with this community when you’re ready to get started. Forming those relationships now increases your chances of working with trusted partners down the road.
Meet with a Mortgage Broker
Mortgage brokers play crucial roles when it comes to the money side of real estate investing. They’re the ones who help you understand what financing you need, and they’ll help you secure that financing when the time is right. Their experience in your local market will help you make smart decisions with your investments and steer clear of common pitfalls.
Go into the meeting prepared with the details of your plan. What are your income goals? How much are you looking to borrow? What is your timeline? Prepare questions for the broker as well. What fees are you looking at? What are problems they’ve seen that you can avoid? Having an outline of what you hope to achieve will result in a more successful, informative meeting.
Research Your Location
Location, location, location. As you start your foray into real estate investing, it may feel safest to invest in properties that are physically closer to your home. It’s important to do thorough research on your area, the surrounding areas, and out-of-town markets to see where you can get the most bang for your buck. Don’t cut yourself off from better opportunities just because they’re outside a 20-mile radius.
Wherever you decide to invest, make sure you have a thorough understanding of the market. Where are the hot spots and cold spots? What’s up-and-coming, and what’s grown stale? How is the market in renting compared to buying and flipping? This is a great place to utilize the network you’ve grown. Don’t be afraid to ask for help from the people who are established in the area.
Learn the Terminology
As you jump into your first real estate project, you’ll quickly learn that there’s a lot of specific terminology people in the field use. If you want to understand what your investment community is talking about, it’s important to know the language. Some important terms to have a firm grasp on include:
- Cap rate.
- Cash-on-cash return.
- 1031 exchange.
- Dynamic pricing.
- Pro-forma.
- Real Estate Investment Trust (REIT).
- Real Estate Owned (REO).
Knowing important definitions will go a long way in increasing your confidence as you navigate your first investment.
Decide on an Investment Type
One of the most important things you need to figure out is what exactly you want to invest in. There are many options, so you should do your research to see what works with your interests, financial plan, and desired market. Some of the most popular types of real estate investment include:
- Flipping houses: You purchase a property for a low price, upgrade it and/or repair it, then sell it for an increased price. Flipping can be done with houses, apartments, single-family units, multi-family units, and more.
- Commercial: You purchase a property with the intention of leasing to commercial (business, retail, etc.) tenants. You can also develop commercial property.
- Residential: You purchase property with the intention of collecting rent from families, vacationers, or both.
While there’s undoubtedly plenty to learn and decide as a first-time real estate investor, you don’t have to go it alone. Building a network of investors, contractors, and brokers in your area helps the rest of it fall into place. With the right amount of research, time, and effort, you’ll be an expert in no time.