You have probably already heard or read hundreds of stories about people who have earned themselves a fortune with real estate investments. The truth is that the real estate business, like any other business, has many risks linked to it. This business has tons of obstacles that can lead to total failure if not taken into consideration.
Yet, it is still possible to track down and invest in the best first real estate investment. Moreover, there are different types of real estate investment properties you can choose from. You should aim to find the right investment that will bring you a good profit.
Nonetheless, this does not mean that everyone can enter the market and succeed in it. You need to prepare yourself and have knowledge prior to becoming the owner of a successful real estate investment. Do not worry, we will present you with the most essential things you need to do to get started in the real estate investing business.
#1 Leave Emotions Aside When Buying Your First Real Estate Investment
People buying their first real estate investment tend to listen to their hearts rather than calculating and approaching the purchase process logically. This is perfectly fine when the property you are buying will be your own home. However, you should choose the business approach when buying your first real estate investment as you need to think about it strictly as a business opportunity.
This means that as a first-time real estate investor, you need to look at the numbers (cash on cash return, cap rate, etc.) and what tenants or property buyers would want and not necessarily what you would want in a home for yourself.
#2 Know What a Bad Real Estate Market Looks Like
Even though you may have selected one of the best real estate investing strategies or found the perfect first investment property, do not start celebrating too early. Your property might be in great shape, but it will only have the potential to bring a good ROI if it is not in a bad real estate market. In fact, a bad market can mean that your real estate investment ends up as a negative cash flow property!
So, how can you make sure that your first real estate investment is in the right market? It is simple, every first-time real estate investor should do in-depth market research. Moreover, we highly advise you to use real state investing tools such as Mashvisor’s Heatmap Analysis Tool. With the help of this tool, every beginner real estate investor will be able to gather neighborhood data and conduct research in no time. Further, the tool will provide you with the most essential real estate metrics and information you need in order to succeed. Analyzing in advance will help you avoid any bad real estate market and invest in the most profitable ones.
Click Here to Try Mashvisor’s Heatmap Analysis Tool.
Related: How to Find the Best Real Estate Investment Markets in 2018
#3 Select THE ONE Among Many Types of Real Estate Investment
What type of investment strategy do you want to adopt and who is your potential target group? Depending on these variables, you should complete proper research before buying your first real estate investment. Make sure that your first investment property is located in an area that will attract the right tenants or buyers, depending on your strategy.
For example, if you are interested in Airbnb income properties, make sure that the property is located somewhere that meets all of the standards for a successful Airbnb business. Same goes when you plan on entering the market for long-term rentals. However, if you are hungry for fast money, real estate investing strategies such as fix-and-flip might be the perfect fit. Do not mishandle this step and tackle it with care to ensure making the right choice for your investment business.
Related: What Are the Best Types of Real Estate Investments for Novice Investors?
#4 Make Sure You Are Financially Prepared
It is a great thing to select a first investment property that provides positive cash flow. However, selecting the most profitable real estate investments is not enough. As a first-time real estate investor, you should prove that you deserve your first real estate investment. When we talk about proving, we mean in a financial way, of course.
When you are dealing with banks, you should have a positive credit history as well as a constant monthly income. The bigger your monthly income, the easier it is to be approved for a loan. Even though you look good on paper, you should also have enough for a down payment. Most banks ask for 20% of the total investment price as a down payment.
However, applying for a loan from a bank is not the only option you have. You can also apply for a hard money loan. This is a faster way to get approved and get the money you need to buy your first real estate investment. Yet, hard money loans have very high interest rates. Thus, if you do not have a plan to return the money quickly to the lender, you might have financial problems later on.
Another and probably the best way to get a loan is through private lenders such as your family and friends. Tackle this step carefully in order to be financially prepared when it comes to buying your first real estate investment.
Related: Investment Property Financing: What Are the Best Options for Real Estate Investors?
#5 Select a Low-Cost Home as Your First Investment Property
When it actually comes to the process of buying your first real estate investment, it is best to keep your investment costs as low as possible. Even if you are ready to invest up to a million dollars in your first real estate investment, you might want to cut the expenses. For one, you can spread out the cash over multiple investment properties and build a real estate portfolio.
It is also highly possible that you will need to spend money on renovation and repairs. Sometimes these costs are very high. It would be ideal to have some handyman skills. This way you would be able to save on all the minor or major repairs, depending on your set of skills, of course. Otherwise, only do what is necessary for safety and increasing your return on investment.
Furthermore, as this is your first real estate investment, keeping the investment costs as low as possible will help you stay in a safe zone and minimize the risks. Even if your real estate investments do not hit the expected profit, you will not risk losing too much with your first real estate investment.
The Bottom Line
Like any business, there is risk involved and simply reading a guide will not eliminate it. However, gaining knowledge and using it may really help you to become the owner of a successful real estate investment, especially if you are first-time real estate investor.
So, how to buy your first real estate investment and succeed? Long story short:
- Make sure you handle your emotions when viewing investment properties.
- Make sure that you carefully explore potential areas for investment. You do not want your business to end up in a bad real estate market.
- Your first real estate investment should be the right fit for you.
- Make sure that your financial situation is in good shape and that you get pre-approved for a mortgage loan.
- Invest in cheap properties as a more secure route for a first-time real estate investor.
As you can see, becoming a real estate investor is not that hard. So now that you know how to buy your first investment property, click here to start looking for and analyzing the best investment properties in your city and neighborhood of choice!