Investing in your first piece of property can be both exciting and nerve-wracking. Will you really be able to make a profit from real estate? Or will you end up in the hole? The answer depends largely on the properties you choose, what you do with them, and who you trust.
Just a few months back we met a real estate investor in our community. He works as a realtor and real estate investor. He buys the properties for beaten down prices. He gives it a new look. He works on all aspects of the property, including remodelling. painting, face lifting and yard redesign, before selling it for a big profit.
Thanks to his efforts, the house next door of ours now looks beautiful and aesthetic. This property alone increased property values of many homes in our area, including ours.
I asked him how it was to be a real estate investor. We spoke at length. here’s an excerpt of the notes I had taken that day.
Real Estate Investment is Still a Business
Too many beginning investors make the very real mistake of believing that investing in real estate is unlike any business venture they have undertaken before. In reality, real estate investment is still a business, and you still need to use your business sense and sometimes rely on your killer business instinct.
There are a few potential benefits, and there are many risks. That being said, there are also differences – but when you approach this investment with the same frame of mind that you bring to any other business venture, you will find it much easier to understand and manage those differences.
Determine What You Need in Advance
If you are planning to use your property as the home base for your business, it is vital for you to determine what you need in a property before you even begin looking. Do you need a building on a busy street that will attract customers?
Or do you need a quiet area for your employees to be able to concentrate on their work, while still being able to enjoy the sunshine and get out for lunch? Make sure, too, to choose a place that has more space than you think you will need.
You won’t outgrow your property too soon, and you may even find yourself expanding more quickly than would have been possible in a smaller area.
Choose Your Property Carefully
When adding stocks to your portfolio, you make sure to research the company thoroughly before sinking money into it. The same should be true of the property you plan to invest in. Find out how the property was used in the past, and how well it fared if it is commercial real estate.
Make sure to pay attention to the neighborhood where it is located as well. If the property is residential, is it in an area that will attract renters? Is it convenient to a school, shopping centre, or nearby entertainment?
If it is a commercial building, visit the property during business hours to see how many people walk by, and how noticeable it is from different areas on the block.
Stick to Your Budget
It may seem superfluous to say it, but it can be all too easy to find yourself sinking into a pit of debt if you allow yourself to go over-budget.
Smooth-talking sellers are good at convincing new investors that they can afford to spend an extra thousand. If you can’t negotiate the price of a property within the limits of your pre-determined budget, then you shouldn’t buy it.
Invest with an Open Mind
You may be determined to let your property now, but sometimes flipping a property is the best option. Likewise, after you have fixed up a fix and flip a property, you may find that letting the space will bring you more income in the long run than selling it outright will.
The most successful real estate investors know that being both flexible and determined when making decisions is vital to the success of any investment. Once you have decided what you will do, however, stay firm in your decision – an eleventh-hour change of mind could end up costing you even more money than a bad initial decision.
Be Careful Who You Trust
Real estate investment is a tough business, much like any business that involves lots of money. And as with any other business, there will always be people willing to “help you out” for a small fee. As a general rule of thumb, if some person or company offers to help you without your asking first, you would likely be better off to decline.
For those services that you absolutely need, such as hiring a property manager, find a reputable company in the area you plan to work in; for everything else, rely on the advice of one or two trusted mentors.
Whether you are planning to buy-to-let, fix and flip, or use the property for your own business venture, following these tips can help you invest in the right property and maximize your income potential.
Lydia O’Brien has made a career out of financial planning and enjoys being able to share her insights and ideas on investing with an online audience. She is a regular feature on a number of consumer lifestyle websites.