How to get started in real estate investing
With home prices and mortgage rates so low, people are seriously considering taking advantage, not only as homebuyers but as real estate investors. In some places, you can potentially “cash flow” a property. That’s when the actual monthly rent received from the investment property pays for the mortgage payment and allows for additional cash to flow. So the question is, how do you get started in real estate investing?
Investing in real estate still makes sense. You get a lot of tax write-offs, for instance, that you don’t get from stock investing. And, if you’re in it for the long haul, you can set up a nice little nest egg when it comes time for retirement.
Here are 5 quick tips for those who are new to investing in real estate.
1. Start local. I always tell people to art with what you know. Invest in your current area. This isn’t only for obvious reasons, so that you’re close by in case of emergency. But, if you start local, chances are you know the area, the schools, the upsides and downsides of certain neighborhoods and the dynamics of the market. You come to the table with upfront knowledge and don’t need to spin your wheels “learning the market.”
2. Start with a single-family home. These are the easiest properties to manage, because you’d have just one home and one tenant, as opposed to an apartment building with multiple renters and leases.
3. Buy newer construction. Old houses can have lots of charm—as well as potential maintenance issues. First-time real estate investors are usually better off with properties built within the past 5 years.
4. Plan for a bigger down payment. If you were buying a home to live in, you’d probably need a 20 percent down payment. But if the property is strictly an investment, plan on putting down 25 to 30 percent. That’s because lenders consider investment properties to be riskier loans. Also, your interest rate might be higher than if you were buying a home to occupy yourself.
5. Invest for the long haul. While real estate is still a good investment, you should consider it a long-term investment. Real estate is not intended to be a quick flip. Get a long-term loan and consider keeping the property and watching the investment grow slowly over time while getting a great tax benefit.
If you’re not able to invest in your local area due to prices or inventory, take the time to research other markets. Maybe look somewhere you’ve traveled to on vacation, or a place you’ve lived in the past. Try to stick to something you know. If you’re going to invest outside of your area, hire a local property manager to take care of it for you. Keep in mind, however, that property managers charge about 8 to 10 percent of the monthly rent.