If you are just starting out as a real estate investor, there’s a long way to go until you master the tricks of the trade. Investing in real estate turns out to be more complicated as compared to stock investment as there are some legal and financial requirements involved along with some serious due diligence. So, it’s better to take some expert advice before you continue and here we have some essential tips that you must check out.
- Location Always Matters
Probably the first thing you need to consider before making an investment in real estate is location. So, before you ever take any money out of your pockets to make a down payment, it’s important that you make sure the property you’re buying enjoys a perfect location that is always in demand.
Remember the golden rule – even if you’re buying the worst home, buy it on best street. You may be able to fix it up some time later when you can spare some more investment, but if it’s not on a great location even that won’t help. This concept is known as “fixing-and-flipping” among professional investors.
- Find Wholesale Properties
Real estate investments are pretty much similar to stock market investments in one way at least: you have to find the best bargain. Remember that you must never pay the “full price” when investing in properties, rather find wholesale properties which are available at steep discount. You might have to work a bit on them, just run through the numbers to figure out whether your investment in the rehab would be worth it or not considering the price at which you’ll be able to sell the property eventually.
- Understand Tax Benefits
Those in government often encourage the private investors to step forward and offer housing for the people. They know if these investors won’t do that, then it will be the responsibility of the government. For that reason, investors in the real estate market are offered major tax benefits.
Depreciation write-off, for example, is arguably the most noteworthy benefit offered to these investors. When buying investment properties that include buildings, you’re allowed to write off building’s depreciation as your tax deduction. Obviously, you have to work out the specifics with your tax consultant, but you can actually expect residential buildings to depreciate over a period of 27 years while commercial buildings depreciate over a period of 39 and half years.
Furthermore, your investments in real estate are considered as your business and it allows you to claim any ordinary and necessary deductions taken by the business owners like insurance, mortgage interest, and the maintenance expenses.
- Don’t Overlook Your Credit Report
It is quite likely for you to borrow money for buying real estate. So, it’s important that you have your credit rating in check before you plan to invest in a real estate property. If it reflects issues that are nothing both mistakes, it’s better to have them resolved quickly. However, if there are any legitimate problems, it’s advised that you work out on improving your credit because otherwise you may not be able to secure loans from banks.
- Rely On “1% Rule”
If your plan is to buy a property that will be rented out to tenants, the “1% Rule” should be taken into consideration for deciding if your investment is worth it or not for the price that you’ll have to pay. The rule is that your property should return 1% of its price every month. For instance, when buying a rental property at a price of $150000, it should have the potential to generate $1500 every month from rent.
To conclude, investment in real estate always has the potential to give fantastic returns. But one shouldn’t overlook the fact that the same has also lead people to go bankrupt. So, it’s always important that you get the ground work right and know what you are doing to be in full control.