The real estate market is improving in many parts of the country. So if you’re thinking about investing in real estate, now might be the time to get your feet wet.
Real estate investing can be quite profitable. Some investors make a comfortable living buying and flipping properties — putting tens of thousands of dollars in their pockets in only a few weeks. Meanwhile, other investors take a different approach and move into a home they’re fixing up with plans to sell for a profit in two or three years.
No matter the approach you take, investing in real estate generates cash that can go toward the purchase of your new residence, or you can use this money to build your savings account or prepare for retirement. It doesn’t take special skills to start investing in real estate, but there are several factors to consider before making your first purchase.
1. What are your plans for the property?
Determine your plans for the property before investing in real estate. Will you live in the home, fix up the property and sell a few years later? Will you get tenants and make the home a rental property? Then again, maybe you’re more interested in buying and flipping real estate for a quick profit.
There are different ways to proceed with investing your money, time and energy into a property. Weigh the pros and cons of different types of real estate investments and choose the one that best fits your situation.
2. Which mortgage option is right for you?
Real estate investors can choose from different types of mortgages depending on their plans for a property. For example, an adjustable-rate mortgage might work if you’re buying and flipping real estate, or if you plan on living in an investment property short-term.
Adjustable-rate mortgages have an initial fixed-rate period up to five years followed by annual rate adjustments. A rate adjustment means the mortgage interest rate increases or decreases based on the market.
Typically, adjustable-rate mortgages start out with a rate lower than most fixed-rate mortgages. If you’re keeping an investment property for a short span of time, there’s the option of getting an adjustable-rate mortgage and selling the property before your first rate adjustment.
On the other hand, if you’re keeping an investment property long-term, consider a fixed-rate mortgage so your interest rate and monthly payment will remain the same for the duration of the term.
3. How much cash do you need to fix up the place?
Investing in real estate can require sizable cash, especially since properties you purchase might need renovations or improvements. If you’re buying a foreclosure that will be your primary residence and a future investment property, you might qualify for the FHA 203(k) loan.
This loan provides funds to purchase the property, plus funds to improve the condition of the property. On the other hand, if you’re buying and flipping a property, the bank can help with investment property loans.
Make sure you schedule a home inspection before buying real estate so you’ll know what to expect cost-wise with fixing up the property.
4. Is the property is an ideal location?
You can have a lovely property, but if it’s located in an undesirable part of town, it might take longer to find a buyer or tenant. Location matters in real estate. Some people only look for properties in good school districts, and others prefer buying or renting homes near an interstate or major highway for easier access to work.
When looking for properties to buy, pay attention to school ratings, nearby amenities, and consider whether the property’s in a safe, quiet neighborhood.
Real estate investing can be profitable, but you shouldn’t jump into investing without doing your homework. Buying and financing properties is easier when you know what to expect, and when you can build a relationship with a knowledgeable mortgage officer and realtor.