Updated: Feb 10
If you’re just beginning to invest in real estate, you’ll find that there’s a lot to learn. Real estate investing is more complicated than investing in stocks because of the financial, legal, and extensive due diligence requirements involved. . To that end, here are 5 basic tips for investing in real estate.
1. Location Matters
The old adage that “location matters” is most accurate when it comes to real estate investing. Before you fork over a down payment and put yourself in a significant amount of debt over a property, ensure that it’s in a good location.
Look for the worst house on the best street. That’s a principle you’ll come across quite a bit as you delve into further real estate investing advice.
You want to invest in the worst house on the best street because it gives you an opportunity to build equity.
2. Look for Wholesale Properties
Investing in real estate is just like investing in the stock market in at least one way: you’re looking for the best deal. If you’re a savvy stock market investor, you probably won’t buy too many stocks at their high if you plan on holding them for a long time. Instead, you’ll follow the Warren Buffet principle of getting greedy when everyone else gets fearful. You’ll buy stocks that are beaten down and make a fortune when they turn around. That’s what you want to do when it comes to real estate investing. Avoid paying “full price” for properties. Instead, look for so-called wholesale properties that are offered at a steep discount. Sure, they’ll probably need some work. Run the numbers and see if the investment in rehab is worth the ultimate selling price.
4. Check Your Credit Report
You’re more than likely going to need to borrow money to buy real estate. That’s why you should check your credit report before you begin investing in real estate.
If you have problems on your credit report that are mistakes, get those resolved as quickly as possible. If you have problems that are legitimate, then you’ll need to work to improve your credit.
Simply put, banks aren’t going to loan money to you for a property that’s not your primary residence as readily as they’ll loan it to you for your own home. That’s why your credit has to be spectacular.
5. Use the “1% Rule”
If you’re planning on buying a property that you’ll rent out one or more tenants, use the “1% Rule” when you decide whether or not the property is worth the price you’ll pay for it.
The 1% Rule simply states that an income producing property must produce 1% of the price you pay for it every month. For example, if you’re looking at buying a property for $150,000, then the monthly rental income should be 150,000 x 1% = $1,500.
Wrapping It Up
Real estate investing offers the potential for fabulous returns. However, people have also bankrupted themselves investing in real estate. Be sure that you know what’s involved before you start.