The importance of financial literacy has never been more evident. Not surprisingly, more of us have recently become interested in investing. From traditional brokerage accounts and stocks to investing in cryptocurrency, people are looking for more ways to make money and build long-term wealth.
However, by and large, knowing how to get into real estate investing has continued to pique the interest of would-be wealth generators more than anything else. As long as you know enough real estate investing 101 information, you can make smart investments (even in a challenging market) that will pay off in the end.
Of course, knowing how to start investing in real estate means knowing the key considerations to evaluate before buying properties or trying to make and meet long-term goals. So let’s take a closer look at ten factors you’ll want to analyze before investing in any type of property.
- Your Budget
One of the most important rules when learning how to start investing in real estate is to stick to your budget. Investors need to determine a property price that they can feasibly afford to avoid getting into real estate deals they can’t support with enough cash flow.
While buying your first property can mean initially putting in more than you get back, having a budget to work from helps improve your chances of long-term success. As your experience and portfolio grow, make sure that your income is stable and you stay below a ceiling for your costs. That way, you’ll have some wiggle room for surprise expenditures if things don’t always go as planned.
- The Type of Property
Next on your list should be to determine the kind of property in which you want to invest. Again, if you’re just starting, sound real estate investing strategies and the right resources will guide you to the best properties for your goals.
With residential real estate, you’ll fill an immediate and consistent need for housing. First, however, it’s important to understand markets and how your fix-and-flips or rental properties serve specific needs to maximize returns.
When you’re learning how to get into real estate investing, many experts recommend that beginner real estate investors start with what you know or with insights from trusted mentors or other investors in your networking community. You can (and should) always acquire more knowledge, but going too far outside your comfort zone with a property type can be a costly mistake as you start your real estate investing career.
- A Property’s Location
There’s a reason why the first rule of real estate is “location, location, location.” The property itself matters, but no one wants to buy the best house in a bad neighborhood.
When evaluating potential investment properties, consider the general area around them. What’s the neighborhood like? Is it in a walkable community? How are the schools? Is it in a desirable spot for your target demographic?
In addition, keep in mind that how the location looks today may not reflect how it’ll be five or ten years from now. Local ordinances or public agencies can tell you more about the area’s zoning and urban planning so you can predict future developments.
- Property Characteristics
The condition of the property matters in addition to the location! Will it require a lot of repairs and upgrades before it can be rented or sold? If so, do you have the knowledge, skills, or staff to take on this project? Will there be considerable maintenance to consider down the line? Evaluate the age of the property’s main systems and account for these potential costs before you buy.
You’ll also want to consider the property’s amenities to attract buyers or tenants. The property’s layout and floor plan—as well as extras like security systems, natural lighting, and landscaping—can make or break the property’s appeal.
- Investment Goals
When you’re figuring out how to get into real estate investing, your “why” matters. What’s your goal or investment purpose? What do you plan on doing with a property?
If you plan on buying a property and living there while renting out a portion for a small amount of additional income, your investment choices and strategies will differ from that of an investor who wants to buy a fixer-upper and flip it quickly for more significant returns.
Having a clear picture of your purpose when investing can help you keep your costs in check, pick the right financing options, guide you to the right location and property type, and reach your long-term wealth goals.
- Property Value
A property’s value isn’t necessarily determined by its list (or even purchase) price. One of the most popular valuation methods is to look at comps or comparable sales info involving properties that possess similar characteristics within the area. Determining a property’s value before you buy can help you avoid overpaying for a property that will never give you a good return or avoid properties that need too much work for you to take on.
- Estimated ROI
Real estate investment ROI can be influenced by many factors, including when the property will be available for rent or sale and the appreciation of the property.
While it’s not always possible to predict what the market will bear in the future, many real estate investors use reliable resources to estimate potential costs and income for properties before closing on a new investment.
- Your Financing Options
Although the current housing market is highly competitive, mortgage rates are favorable. According to Freddie Mac, the average 30-year, fixed-rate mortgage loan decreased to 2.74% in January 2021.
That’s good news for investors looking to obtain some kind of financing from a bank or lender to expand an investment property portfolio. However, you may want to think beyond the fixed-rate mortgage, especially if you’re looking to fix up a property and sell it relatively quickly. Other types of financing may be better suited to your investment.
- Local and State Laws
Remember that local and state laws can have a significant impact on a real estate investment. Taxes are often a chief concern, but investors should also learn about landlord-tenant laws or city ordinances that can impact renovations for fix-and-flip investments. It’s best to work with an accountant, lawyer, or property manager to help you make smart decisions based on your potential tax obligations.
- Market Conditions
While the real estate market currently favors sellers rather than buyers, that can change quickly. Before you invest, conduct thorough market research in your target location. Real estate investors might be able to get more for their money by switching to a different area or timing a new property purchase just right. Sometimes it can pay off to hold off and pay attention to market predictions.
With Privy, you have a software system and algorithm monitoring the best possible real estate deals from across the country! Our system gives investors the confidence to attack the right type of investment properties in the ideal area to maximize returns.
Make Smart Real Estate Investments With Privy!
When you’re learning how to start investing in real estate, you’ll want to learn as much as you can about markets and strategies. By keeping these ten considerations in mind (and using the Privy platform), you’ll be well on your way to making smart investment decisions. The best way for a real estate investor to understand the ins and outs of a profitable real estate investment deal is to take away the guesswork! Reach out to learn more about how the Privy Advantage helps investors stop guessing and start investing smarter.
Learn more tips for real estate investments! Download our free guide, “How to Invest In Real Estate: A Guide!”