Ok, so you are thinking about starting a real estate business but don’t know where to begin and/or how to go about it?
Here is some good news for you, below is what you must know in order to build a strong foundation in real estate investing. This article gives you important real estate concepts, theories, and tools in order to choose the right property investment to grow your real estate business. While it is true that there is a ton of readily available information on the web, here we have accumulated the best tidbits of information and advice you must know before you get started in real estate investing. You should realize that starting a real estate business is no walk in the park, but with the right determination and dedication, you can also become a successful investor and build a monster of a real estate business. So, let’s get started.
Related: How To Start A Real Estate Business With No Previous Experience
Understanding the Gains of a Good Investment
First and foremost, real estate investing is a business and just like any other business, every successful entrepreneur must dedicate lots of time and effort to get it off the ground. Your ability to succeed as a real estate investor is dependent on the time you put in it, the knowledge you acquire, and the financial resources you have.
Before starting a real estate business, understand the gains of a good property investment:
1. Appreciation: Your real estate property is likely to increase in value over time, given a strategic location in a growing economy. You can buy and hold an investment property and sell it for a lot more than its original price down the line.
2. Positive Cash Flow: Real estate investors buy rental properties for a steady flow of rental income from tenants occupying the rental units. The trick is to choose positive cash flow properties that earn you an extra cash or passive income after discounting all your expenses, i.e., mortgage payment, property tax, etc.
3. Tax Advantages: Owning investment properties is a business, and thus real estate investors benefit from tax exemptions for running a real estate business. Depreciation, expenses, and maintenance costs are few examples of these tax advantages you gain. Starting a real estate business can save you money, folks.
Choosing Your Investment Property
Next step is to choose an investment property to kick start your real estate business. Remember that no success story comes from thin air; successful real estate investors strategize and analyze before they close the deal on any real estate investment.
Types of Investment Property for Starting a Real Estate Business:
- Single family homes
- Multi family properties
- Condos
- Commercial buildings
- Mobile homes
Related: What Features Make the Best Investment Property?
Finding the Property For Investment
Starting a real estate business starts with proper real estate market analysis followed by investment property analysis. Once you hone down on which property type you would like to invest in, the next step is to actually search for and find the property.
Use Mashvisor to find the perfect investment property
Mashvisor makes it easy and time-efficient to find the optimal investment property for your business. Mashvisor allows you to search through thousands of real estate properties across the country based on your budget and preferences, i.e., location, expenses, and others. You can also compare properties based on cap rates, cash on cash return, positive cash flow, rental income, and much, much more.
Mashvisor determines the profitability of a potential rental property via:
1. Neighborhood Analysis. Not only do you get a map view of the area of choice, but you can also compare neighborhoods based on:
- Listing price
- Airbnb and traditional cash on cash return
- Airbnb and traditional cap rate
- Airbnb and traditional rental income
- Airbnb occupancy rate
2. Mashvisor Mashmeter. The Mashmeter is one of the best tools available on Mashvisor. It simply tells real estate investors how good or bad investing in a particular neighborhood is. The score expressed as a percentage is based on quantitative and qualitative data collected.
3. Rental Property Analysis. This provides rental strategy comparisons for both Airbnb and traditional rentals based on:
- Rental income
- Monthly expenses
- Cash flow returns
- Cash on cash return
- Cap rate
- Occupancy rate
4. Expense Calculator. You can choose a financing option (i.e., mortgage or cash) to decipher the costs and returns you will incur for any rental property you choose. Mashvisor discounts the one-time and recurring costs to calculate your future cash flow for the rental property in question. You can also edit expenses to recalculate present and future cash flow returns.
NB: One time costs include inspections, repairs, furnishing, and any other first time cost the user wants to add to the list. Recurring costs include insurance, utilities, property management, property tax, and any other customized expense the user wants to add.
Related: Why Is Real Estate Market Analysis So Important?
Managing Your Investment Property
1. Managing it by yourself. Starting a real estate business makes you your own boss. When you become a landlord, you are responsible for upkeeping your rental property as well as managing and adhering to your tenants’ complaints and demands. Managing people is no easy task.
2. Hiring a property manager. If you cannot manage starting a real estate business on your own, there is nothing wrong with hiring a property manager to help you out. This entails: adhering to tenants’ requests and demands, maintaining the investment property, hiring contractors if necessary, collecting rent, and handling eviction notices. Professional property managers must get a real estate license in the state in which they work.
Tips for Starting a Real Estate Business
1. The 1% Rule: If you are collecting a monthly rental income that is almost 1% of the purchase price, you made a good deal.
For example:
Rental income = $1,700 per month
Purchase price on the property= $200,000
Thus, you are collecting 0.85% ($1,700/$200,000) of the purchase price every month.
Not a bad deal for starting a real estate business!
2. The 50% Rule: A good deal on a house entails having operating expenses and vacancy amount to no more than 50% of the monthly rental income.
For example:
Rental income = $1,000 per month
Total monthly expenses = $500
Expense to income ratio = 50% ($500/$1,000)
If you are losing your rent money to more than 50% on expenses, then you made a bad deal on the house.
Conclusion
Starting a real estate business has many positive outcomes and one that is financially rewarding for many. Our last advice to you: invest in a good property that is located in a prime location to reap the financial rewards in the short and long terms.