Entering the real estate investing business is definitely one of the best ways to make money. However, it is not as simple as buying an investment property and waiting for it to start making money. There are still so many questions one needs to answer before making such a decision. To know whether or not you’re ready to start a career as a real estate investor, take a look at the following questions and try to answer them as clearly as possible.
How Much Do You Know About Real Estate?
Before you even consider buying an investment property, you need to have some knowledge about real estate investing. So, the first question a beginner property investor should ask is “How much do I know about the market?” It’s not necessary to have a college degree in real estate to become a real estate investor, but it’s extremely important to have some general knowledge of the market. No one can succeed in any type of investment which they have no knowledge of.
If you don’t already have some general knowledge to enter the real estate investing business, then you should start learning! Property investors need to familiarize themselves with the different types of investment properties, real estate investing strategies, investment property financing options, and more.
Related: What’s the Real Estate Education You Need to Start an Investment Business?
Don’t panic! Even though there is a lot of information to take in before buying an investment property, you can easily access articles, blogs, and online books and courses on real estate investing. In addition, real estate is learning by doing, and one of the best ways to learn is by simply speaking to someone who is already investing in real estate.
Experienced property investors can provide you with the ins and outs of the market and share some challenges they’ve faced when buying an investment property. This will help you know what to avoid and how to deal with the challenges you’ll face throughout your career as a real estate investor.
What is the Best Location for Buying an Investment Property?
If you’re buying an investment property for the first time, one thing real estate experts will tell you is “location, location, location!” Location is a major factor when it comes to everything in the real estate investing business. The location of your rental property will determine expenses, appreciation rate, cash flow, how much to ask for rent, and many other aspects that determine how profitable your investment is.
As a result, before buying an investment property, property investors should ask themselves “Am I buying in the right location?” Your local real estate market is not necessarily the best place to start a real estate investing business. Therefore, the property investor has to perform a careful real estate market analysis of potential locations to decide which location is best for buying an investment property.
In real estate investing, the best locations are those with a high demand for investment properties, healthy economy, growing population, reasonable property prices and operational costs, among other factors. To save time, you can use Mashvisor’s rental property calculator to help in your search for the best location in the US housing market before buying an investment property!
Related: How to Identify the Best Places to Invest in Real Estate
What are Your Financing Options for Buying an Investment Property?
The next question a real estate investor should answer is “How will you finance buying an investment property?” Property investors should be aware of how much they can afford to spend and set a budget to ensure that they don’t go broke after buying an investment property. As a real estate investor, you need to have enough money to close the deal and keep going after the purchase is made.
Property financing is a major concern for many beginner real estate investors. If you’re planning on buying an investment property with a loan instead of paying fully in cash, you need to know which investment property financing option works best for a successful real estate investing business. Conventional mortgage loans are the most common in real estate investing for beginners. Other investment property financing options are hard money loans, owner financing, and real estate syndication.
Related: Investment Property Financing: 4 Efficient Methods
Moreover, the property investor needs to have a clear idea of where to obtain these loans and the requirements and outcomes of each property financing option. This will help them determine the best way to finance buying an investment property.
What Type of Investment Property Should You Buy?
So, say you’re set on an excellent location and property financing option for buying an investment property. The next question you should answer is “Which type of rental property should you buy?”
The real estate investing business includes several types of investment properties. There are single-family homes, multi-family homes (ranging from duplexes to entire complex buildings), townhouses, condos, etc. Before buying an investment property, property investors should be aware what it takes to own and manage each type and which one would make the best investment. Naturally, as the goal of every property investor is to make money from real estate investment properties, the best type of property to invest in is whichever brings the best return on investment.
To answer this question, it’s important for the property investor to perform a real estate investment property analysis. This allows the property investor to compare and analyze different types of investment properties by calculating the cash on cash return, cap rate, and potential rental income of different investment properties to find best one. Mashvisor’s investment property calculator does exactly this and more!
To start analyzing the best investment properties in any city and neighborhood of your choice, click here.
Which Real Estate Rental Strategy is Optimal?
Before buying an investment property, a real estate investor should answer the next question: “What investing strategy should I follow that guarantees a high return on investment?” Property investors can start a real estate investing business for the long-term (traditional) or short-term (Airbnb). Both have their pros and cons and the optimal strategy depends on a number of factors including the location and type of rental property.
Following the long-term (traditional) strategy – which is the most common one – means the real estate investor makes money from buying an investment property and renting it out to long-term tenants. On the other hand, with Airbnb rentals, property investors make money from renting them out for a short time period (usually less than 6 months). A beginner property investor needs to know what each investing strategy entails and when it’s best to go for a traditional investment or an Airbnb investment.
Related: Real Estate Investing: Traditional vs. Airbnb Investments
Should You Hire a Professional Property Manager?
Real estate investing does not finish after buying an investment property. Once you’ve purchased your rental property, you have to manage it. General responsibilities of being a property investor and managing a rental property include finding and dealing with tenants, doing repairs and maintenance work, dealing with taxes and legal issues, etc.
Property investors can decide to do all these on their own or, alternatively, they can opt to hire professional property management. There are many property management companies that take care of investment properties and provide a set of services to the property investor. However, you should keep in mind that these come at a price. Thus, as a real estate investor, you have to check your budget, expected cash flow, and time availability to answer this question before buying an investment property.
Are You Ready to Become a Real Estate Investor?
The final question to ask yourself before buying an investment property is whether or not you’re ready to become a property investor. Investing in real estate is not as simple as buying an investment property and waiting for it to start making money – it’s a business and not any beginner is ready to enter this business. You have to be organized, affirmative, possess social skills and attention to details.
Real estate investing requires not only investing your money, but also a whole lot of your time and energy. This means you might have to quit your 9-to-5 job in order to focus on your real estate investment full-time. Are you personally ready to do that? If not, then buying an investment property is probably not a smart decision to make.
Final Words on Buying an Investment Property
While there are many, many other questions one should think about before buying an investment property, above is a list of the most important ones. Try to answer these as clearly as possible before entering the real estate investing business and becoming an investor.
If you believe that you are ready to start looking for investment properties, check out Mashvisor! Mashvisor is an online platform that provides property investors with the best real estate investing tools and data analysis to help them make smart investment decisions for a successful real estate investing career, including the rental property calculator, rental property finder, the Heatmap, and Mashmeter.
Sign up with Mashvisor to get full access to the best real estate investing tools and start making faster and smarter real estate investment decisions. To start out your 7-day free trial with Mashvisor, click here.