Many first time real estate investors don’t know where to start, and end up making costly mistakes. Investing in real estate, like investing in most industries, is a lot easier if you have a clear understanding of the process and what steps you need to take in order to succeed. Purchasing investment property is different from buying a home for yourself, so you will have to put the needs of the future tenants or home buyers before your needs.
10 Steps for Success
When it comes to purchasing a property, it’s always good to have a plan. Now that you are investing in a property, you want to make sure that you will make a nice profit, so having a plan becomes even more important. Here are 10 steps that you should follow in order to become a successful real estate investor:
1. Set goals. Determine why you are investing, how much money you want to make, and write this down. Whether you are saving for retirement, your children’s college funds, or you just want to make money, setting goals will help you stay on track. Having a clear set of goals will prevent you from making impulsive decisions that can turn a seemingly good investment into a nightmare. Discussing the investment with your family is also a good idea, as these investment choices will affect them as well.
2. Review your finances and budget. Thorough review of your bank account is required in order to succeed in real estate. Consult a financial advisor to find out exactly how your financial situation will be affected by your property investment, the costs, and profit. Always overestimate repair costs, so you won’t have any unpleasant and expensive surprises in the future.
3. Hire a good real estate agent. Even after doing significant research, you will hardly be an expert in real estate investment, so hiring a professional will benefit you greatly. Real estate agents who focus on investment property should have all of the market information and contacts that you need to find good deals, even before they are listed on the market.
4. Research the market. You might know everything about the housing market in your area, but that doesn’t mean you will find a good deal there. Extending your search to other areas of the state or even the country can result in finding some great bargains. Your real estate agent can be of great help with this, and put you in contact with his colleagues all over the country.
5. Research the rental market. If you are investing in a rental property, start looking at what other homes are being rented for. Again, your real estate agent can provide this information, but you can also find out rental prices in certain areas from places like Craigslist, or classified ads in local newspapers.
6. Get pre-approved for a loan. Having the money ready when shopping for good deals puts you at a great advantage, so try to not make any offers until you know that you will be able to borrow the money. Being pre-approved for a loan will make your offers more credible and increase the chance that you will succeed in buying the property.
7. Have some cash readily available. Having some money that you can access quickly will also save you a lot of headaches. That money can be used to make a quick down payment, which will secure the deal, or to pay the interest, tax, and insurance.
8. Hire a professional inspector. Having a professional inspection can give you peace of mind when investing in a property. The few hundred dollars that you will spend on the inspection could possibly save you thousands in the future. Issues like roof or foundation damage are hard to see by someone who isn’t a qualified inspector, and can become very costly if left unrepaired. Of course, before buying a damaged property, you should factor in the repair cost, and then decide how much you are willing to pay.
9. Negotiate the price. After you have found a property that you are willing to invest in, it is time to make an offer and negotiate the price. Having a few other options is recommended, as it will prevent you from overpaying. After the negotiation is done and you have reached an agreement with the seller, you will have to put down a 1 percent earnest deposit, and then you will typically have a couple of weeks to purchase the property.
10. Completion of the sale. Before the completion of the sale, you will have to do an inspection of the property, in order to make sure that all appliances and fixtures that were agreed on are still there. Then the only thing left to do is to collect the set of keys and start working on a plan to make your new investment profitable.
Going through these 10 steps will save you time, money and the headaches associated with buying a property. Once you think that you have a firm grasp on how investment in real estate works, it’s time to find other properties and reach your financial goals.