If you’re thinking about getting into real estate investment but don’t know where to begin, or aren’t sure how risky it could be, there are some basic tenets to follow that many seasoned investors recommend. We’ll cover some of those below. Also, familiarizing yourself with different types of real estate investment and figuring out what kind of investment is best for you is another important early step.
What we’ve outlined below are basic tips and guidelines to give you a sense of where to begin, but ultimately what you do is up to you. The world of investing is nuanced and multifaceted, so consider this article a jumping-off point.
If you’re just starting out as an investor, starting small is a sensible thing to do. For example, investing in a single family home that you plan to rent out, or a 2-4 unit rental property is wiser than jumping into a large rental. While this is obviously financially less risky than diving into a larger property, there are other benefits as well. From a lending perspective, a 2-4 unit property falls into the same category as a single family home, whereas anything above 4 units is considered a commercial property.
Furthemore, as a landlord, if you make one of the units your primary residence while renting out the other units, you can qualify for a Federal Housing Administration Loan, which requires a very low down payment - usually between 3.5%-5%. And if you really want to save money and get the biggest return on your investment, be ready to get your hands dirty. Doing any maintenance or repair work yourself and managing a small rental property on your own, without the added expense of a management company, is another great way to save money early on.
While 2-4 unit rentals are a good way to start, and living on the property has its benefits, there are other attractive investment options out there. Flipping houses has become very popular and is a good way to get a fast return on investment if you know what you’re doing. Be wise and don’t bite off more than you can chew. While there is certainly nothing wrong with investing in a fixer-upper at a great price, think beyond the property itself. Is the neighborhood desirable? Is it up and coming? Will families with children want to live here? How do other properties in the area compare to your fix-flip? What is the market like?
Flipping houses is more complex than buying the worst house on the best block and turning a fast profit. House flipping is another investment area where you may want to do some of the work yourself to save money. Remember - when starting out as an investor, the money you make from your first property can help you finance your next properties and make you even more money - but in order for that to work, being frugal and hands-on in the early days pays off.
Know the Neighborhood (And do Your Research)
Regardless of whether you choose to flip an older home, buy a multi-unit property and live in it, or go with another option, knowing the neighborhood in which you’re investing is key. Don’t buy blindly based on what you think is right or what you’ve been told is a trendy area. Do your research and weigh your expenses with your potential monthly earnings. Are you in an area with access to public transit, good schools, and local attractions? What is the crime rate like in this neighborhood? Is it safe? What is the ratio of renters to owners in the area? Is there a high turnover of renters? If so, why? These are all important things to think about regardless of the property type you ultimately decide on.
Real estate investment can be extremely profitable, if you go about it the right way. Follow these tips, learned from successful real estate investors, and you'll begin to see a pattern of success.