If you’re looking for an investment to grow your discretionary income or boost your savings, real estate may be a good option for you. However, it’s important to understand that investing in real estate is far different than any other investment avenue. Investment maintenance as it pertains to stocks typically means you’re checking in on the growth of your securities; whereas real estate maintenance could mean fixing issues with plumbing, advertising your rental space, and screening tenants.
If you’re new to real estate investment, there are a few things you need to know before you invest. To help you get started, we’ve created a list of the top things you need to know.
1) Evaluate your investment budget
No matter what type of investment avenue you’re considering, the first step you should take is determining your budget. If you don’t have a substantial amount to commit, you might consider other ways to invest such as an investment app, where you can periodically invest your spare change.
If you do have enough money set aside to put a downpayment on a property, real estate could be a really lucrative investment for you, so long as you play your cards right!
2) The difference between a buyer’s and seller’s market
Once you have an idea of how much you want to spend on your investment, you should do some research in order to figure out whether you’re in a buyer’s or seller’s market. Here’s the difference between the two:
- A buyer’s market is when there are more houses up for sale than people looking to buy. In other words, the supply outweighs the demand. In a buyer’s market, sellers will typically accept lower offers than they had originally listed. This situation is good for buyer’s but not so great for sellers.
- A seller’s market is when the market is competitive, essentially the opposite of a buyer’s market. In a seller’s market, sellers often get more money than they’d originally asked for because there aren’t as many homes available on the market.
As an investor, you want to make sure you’re buying and selling at the best time for you. Pay attention to average home prices and other market indicators to help you determine what type of market you’re in.
3) Understand how financing works
Even if they’ve saved up money over a long period of time, most investors and homebuyers have to secure some sort of financing in order to buy real estate. There are many types of financing you can employ. Many people opt for a traditional mortgage, but if you’re looking to get your financing approved fast, a hard money loan for home investment might be the way to go. Hard money loans typically get approved faster (sometimes in 24 hours or less) and are a standard financing option in the real estate investment industry.
Of course, no matter what type of loan you choose, you’ll need to make sure that you’re in a position to pay off your loan balance within the allotted loan period. Failing to do so could result in penalty fees which could ultimately minimize the value of your investment.
4) Consider the type of property you want to invest in
As there are many loan types, there are also many different ways you can invest in the real estate market. The most common avenues are housing development, commercial real estate, long-term rentals, and short-term rentals. To determine which investment path is best for you, consider your capital, experience in real estate, and the amount of time you want to invest. Large-scale developments typically require more finesse and capital while short and long-term rentals aren’t quite as much to manage.
5) Think about the extra work along the way
As we mentioned before, investing in real estate can involve a substantial amount of time, money, and work. If you already have your hands full with other personal and professional commitments, you might consider hiring a property management company to help you take care of the maintenance involved with property rentals.
Before jumping into the real estate investment market, consider these 5 factors:
- Your budget
- The market
- Property types
Interesting related article: “What is an Investment?“