Are you considering how to invest your savings for your retirement? Real estate presents one of the safest available options. It involves the purchase, ownership, management and rental or sale of properties with the intention of making a profit. However, as all investments do, it requires analysis and knowledge.
Here are six important points that you need to consider before you decide to become a real estate investor.
1. Calculate your funds
The first thing you need to know is how much money you have. It will define what you can and cannot do. Available funds include your cash reserves, possible loans and other money sources that can be used in your investments.
If you don’t qualify for a bank loan, there are other private lending institutions that can help you. Similarly, you can find a private lender, who might see your investment as a good opportunity. However, bear in mind, these last options usually imply higher interest rates.
2. Do extensive research
Doing proper and extensive research is key to acquiring the necessary knowledge to invest in real estate. Nowadays, with the Internet, this task can be easily done online.
Compare similar properties. Consult online sites where you can estimate property values. Research the sales and rental history of different properties. Do some calculations on possible returns on investment. Consider a pessimistic, an optimistic and a realistic case for each calculation. Also contemplate different options, such as private renting, using an online peer-to-peer rental service (Airbnb, 9flats), or a local agent. Find out about commissions and other possible expenses. Calculate how much you would have to spend on maintenance. Consider that hidden costs may vary between 10% and 20% of the total cost.
3. Create your investment strategy
Creating an investment strategy basically involves answering some basic questions. They include, how much you’re going to invest, what type of property you’re going to buy, how you plan on making a return from them, when are you going to invest, and where will you purchase your properties.
Importantly, set yourself S.M.A.R.T. goals: Specific, Measurable, Attainable, Relevant and Time-bound. This will help you to keep control of your investments. Also, remember that investment means taking a risk. So, don’t panic if you lose some money. Keep your goals in mind and continue with the good work.
Your strategy should consider factors such as, whether to specialize in residential or commercial property, and renting to corporations or people. For example, corporations are usually looking for housing for their executives. They are safer as they usually don’t default, but can be more demanding and require expensive properties. You could also consider buying a duplex and renting it to two different tenants. Your options are many.
4. Choose a location
Knowledge is a must in all successful investments. Real Estate is no exception, and it is easier to master a specific location. Choose the right location, and research the area as much as you can. Look for information on taxes, school districts, demographic trends, rates, availability and quality of public transportation, availability and access to the Internet, and other factors that may influence the value of your properties.
5. Pay down your debt as soon as possible
Having debt is not bad, but it is important to reduce it as much as possible, because banks and lending institutions consider your debt to income ratio, in order to determine whether you qualify for a loan or not.
Besides, knowing that your investments are pretty secure and free of debt, will give you the necessary tranquillity and confidence to continue taking risks.
6. Separate your personal and business actions
An important aspect of an investment strategy is to create a separate bank account for your investments. This will ensure that you don’t use your investment money for personal expenses, such as vacations, beer, or clothes. It is so easy to get tempted when you see that there are funds available!
It will also help to establish an investment legal entity, such as a limited liability company. In this way, if your business goes wrong, your personal wealth is not affected. Moreover, if your strategy pays off extremely well, you can expand your firm more easily, add partners, or even sell your successful business.