How to Not Get Burned in a Real Estate Investment
According to investment experts, right now is a great time to begin including real estate as part of an investment portfolio. Reason being, the housing market is finally starting to recover from the mortgage meltdown and housing prices are enjoying a slow but steady rise nationwide.
However, if you are a first-time real estate investor, it can be all too easy to get burned in a real estate investment and never return to try again. In this article, learn what to do to not get burned when you start investing in real estate.
Tip 1: Stick to your budget.
Put simply, looking at homes that are out of your budget range is a recipe for real estate investing disaster. Not only is home pricing a particularly subjective exercise, but home buying can be fraught with emotion, even when entered into from a purely investment-minded position.
As well, if you are planning to put a certain percentage down on your mortgage loan, you will want to adjust your housing budget for your home plans down by that amount to cover any out of pocket costs related to your down payment. Doing this will avoid the risk of putting you in over your head financially with a real estate investment.
Tip 2: Always get your own independent home inspection.
While there is never any particular reason to distrust inspector referrals made by a realtor or seller, it is still considered an industry best practice to hire your own independent, unaffiliated and objective home inspector.
This way, you can feel more confident that the inspection report represents the most accurate information that you are considering. After all, the home inspection report is one of the best potential bargaining tools you will have if you want to negotiate a price down.
Tip 3: Understand where and how your investment in real estate can pay off.
According to Investopedia, these are your "best bets" for realizing a profit when investing in real estate:
- Appreciation. As property values increase, or appreciate, you will be able to sell your house for increasingly more than you paid for it.
- Improvements. If the seller made improvements, such as adding glass pantry doors, this may cause the property value to increase over time.
- Land value. The underlying value of the raw land may increase due to location, the presence of water or natural resources (lumber, minerals, et al), its status (unrestricted versus restricted use) and other reasons.
- Location. Being situated in a desirable location can render a property or piece of land valuable in its own right.
- Rent. If you plan to rent the property out for residential or commercial use, you can earn a steady income stream from rent payments.
Knowing where reliable income can come from - immediately or over time - will shield you from any real estate-related "get rich quick" schemes that rely on other means for generating a profit from real estate investments.
Tip 4: Do your own real estate research.
When it comes to investing in real estate, there is no substitute for doing your own "boots on the ground" research into the property. Legally speaking, each state has requirements for what a seller must disclose to a buyer.
So it is essential to do your own independent research into everything from the home's location to its structure to the local weather history to whether real estate in the surrounding neighborhood is appreciating or depreciating in value over time.
By doing your own independent research, ordering your own independent home inspection, quantifying how profitable an investment home may become in the future and sticking to your home buying budget, you can avoid getting burned and end up with a valuable real estate investment property.