At some point, you’ve probably heard some talk about investing in real estate, and you may have wondered if it was right for you. If you’re a new investor, it’s important to have a basic understanding of real estate investing and the key factors for making money on your investment. As you consider investing in real estate, here are a few points to consider:
It’s Location…and Lots of Other Things
It’s been said that the location of a property is key to its buyer desirability. While this is often the case, sometimes that can mean the worst house on the best street, so the house may need some work, but those extra repairs could pay off.
There are, of course, other important elements which may impact an investment property such as supply and demand, an undervalued property vs. an overvalued one, a well-maintained home vs. a fixer-upper, an older home vs. a newer home, flipping the property vs. renting it, and a short-term vs. long-term appreciation outlook.
Put Yourself in Prime Position
As a new real estate investor, you may be competing against other investors and buyers for a property, so getting the early jump on an available property can make all the difference. In addition to staying on top of new listings, it can be beneficial to establish a network of trusted resources such as builders, contractors, Real Estate Agents and even family and friends who can give you a “heads-up” when new properties become available.
Also, since many of your potential competitors may be cash buyers, it’s a good idea to get a loan pre-approval letter sent in with your offer in order to be taken seriously.
Get the Best Deal Possible
It seems obvious to look for the best deal on an undervalued property. New buyers, however, may be prone to overpaying in their rush and inexperience to get a property. A property appraisal or a home inspection can help establish a more realistic value. Known for their affordability, Real Estate Owned (REO) properties will often be sizably discounted, but may require some work that may cut into your profit margin.
Think It Through
Make sure you have a clear idea about what you want to do with the property. If you’re renting it out, make sure to establish guidelines for potential renters. If you’re flipping it, factor in how much added work it will take to make the property not just functional, but desirable. In addition, consider when it is optimal to sell it.
If Renting, Follow the 1% Rule
Many real estate investors use the 1% rule to determine if a property is worth renting out. As a landlord, this simply means that the market will allow you to charge the tenant a monthly rent that is calculated by 1% of the purchase price, and possibly any needed repairs, taxes and insurance. By following this formula, the investor can determine whether they are on track to profit or at least break even with their purchase.
Check Your Credit
It’s no surprise that you will need money to pursue investment properties. However, making sure that your credit is good enough is important in securing your home loan. By checking your credit report, you can easily confirm if you’re creditworthy and know if you should report any errors to the credit bureaus or take time to repair any credit issues.
New American Funding is positioned to help you with your real estate investment needs. If you're ready to buy a home, estimate your monthly payments with our mortgage calculator and feel free to reach out to our Loan Officers for guidance on today’s mortgage rates or to start a conversation about choosing a loan option that meets your goals for a prosperous future.