• Home
  • About
  • Recommended Reading
  • Disclaimer
  • Privacy Policy
  • Advertise / Contact

Invest It Wisely

Maximizing your EV in life

  • Home
  • Growing Your Wealth
  • Small Business Solutions
  • Healthy Living
  • Miscellaneous

How to Ensure a Great Real Estate Investment

By Mich

investing in real estateBuying real estate can be a risky endeavor, but if you do your research and invest wisely, it can really pay off in the long run. Buying a stable property and renting it out can give you a good source of additional income for relatively little effort, and if you’re an investor, it can help you diversify your portfolio.  Now is actually an ideal time to invest; the housing market is beginning to recover, but interest rates and housing prices are still generally low. Before you go jumping into the world of real estate investment, though, you need to look at the costs and benefits of buying a property. Here are a few things to consider.

Look for a property with a positive cash flow. This may seem obvious, but you’d be surprised how many people decide to invest in an expensive property that won’t start paying off for at least 10 years (more on that in a second). You need to make sure that the income you’re earning from monthly rental is enough to cover all expenses, including the mortgage and any necessary home repairs, so that you’re ending up with a positive cash flow. Remember that if the money you put into a house was sitting in a bank, it would be earning interest—your goal with a real estate investment is to be making more than you would if that money were just sitting in the bank.

Know where there’s a housing demand. Think about what the typical renter wants. They probably want to live in a low-crime area and, if they have kids, they’ll be looking for an area with a good school nearby. They may also want to have easy access to public transportation and amenities like a grocery store or a mall. A location near a pristine park is also a draw. As much as possible, avoid purchasing properties in a rural or hard-to-get-to area, as there will be a smaller pool of renters and less demand for your property.

Don’t fall into the trap of an expensive property. Investing in a fancy house in a much-desired neighborhood might seem to make some financial sense because then you can charge more for rent, but this type of enticing property often results in a negative cash flow. Think about it: you’re going to have a higher down payment and higher monthly mortgage payments, and rent isn’t necessarily going to cover that. You also may end up paying more than you initially anticipated in order to maintain a larger, more expensive house.

Do your research when it comes to fixer uppers. Fixer uppers are another type of property that sound like a good idea in theory. It’s like the philosophy behind stocks: buy low, sell high. Buy a run-down property at a low rate, then fix it up to significantly increase its value and sell it for a higher price. And sometimes, this really does work out in the investor’s favor. However, you’re also taking on a lot of risk with this type of property. First of all, labor costs may be higher than you expect, and if you can’t do much of the labor yourself, it might not be worth it. You may also run into problems when you purchase an older house because the foundation may be unstable, there may be mold or water damage, and you might need to install new plumbing, wiring, or a new roof. If you are planning to buy a fixer upper, carefully research the costs for repairs before putting down your money.

Avoid risky properties with high tenant turnover. This might sound like another obvious point, but how do you determine what properties are risky? Generally speaking, college rentals, vacation rentals, or low-quality units in a bad area are likely to have a higher tenant turnover as well as tenants with shaky credit histories. Your goal should be to purchase a moderately-priced, stable property that you can rent for a long period of time to reliable tenants with a good credit score.

Investing in real estate can be a smart financial decision and a great experience if you go about it the right way… but if not, it can be a nightmare and a drain on your finances. It’s not a decision you should make lightly, but if you feel like you’re ready to get into real estate investment, take stock of your assets, talk to a local real estate agent and start looking at the properties that are available in your area.

 

Related Posts Plugin for WordPress, Blogger...

Filed Under: Growing Your Wealth, Investing, Real Estate

About Mich

Mich is your typical middle class guy with a house and 2 kids minus the dog. He works in the IT industry and likes to muse about how to achieve more for less when it comes to money.

Comments

  1. Michelle says

    September 4, 2013 at 3:37 pm

    Great list! We are thinking about adding some real estate to our investment portfolio.

  2. Kevin Watts says

    September 16, 2013 at 7:25 pm

    Fixer uppers can be huge money pits and a big headache. Be extremely careful with what areas you buy in too.

About Invest It Wisely

Invest It Wisely is about evaluating the choices that each of us face everyday. It’s about investing your time, your money, and your energy wisely, in order to achieve your goals. The end goal is maximizing your life expectation, and exploring the ways to get there.

Subscribe!

Subscribe via RSSSubscribe via EmailSubscribe via TwitterSubscribe via Facebook

Most Popular Posts

  • How to Get Fit, Feel Better, and Get Rid of Your Foggy Head: A Few Simple Steps
  • 3 Frugal Ideas for a Romantic Valentine’s Day
  • What Would You Do with a Million Dollars?
  • The Importance of Opportunity Costs, and Why They Should Not Be Ignored
  • What Do You Need to Get out of the Rat Race and Achieve Financial Freedom?

Categories

  • Avoiding Scams
  • Book Reviews
  • Crypto Trading
  • Currency Trading
  • Economics
  • Financial Freedom
  • General Reviews
  • Growing Your Wealth
  • Healthy Living
  • Insurance
  • Interviews
  • Investing
  • Market Analysis
  • Miscellaneous
  • Motivation
  • Opinion
  • Paying Down Debt
  • Philosophy
  • Precious Metals
  • Reader Questions
  • Real Estate
  • Relationships
  • Saving Your Money
  • Small Business Solutions
  • Stories
  • Uncategorized
  • Weekend Reading

Archives

Invest It Wisely Copyright © 2016
Creative Commons License
This work by Invest It Wisely is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License
Permissions beyond the scope of this license may be available at http://www.investitwisely.com/contact