Real estate investments can be a highly profitable investment choice if done correctly. Choosing prime properties and locations can enable investors to earn far more than would be possible with most other forms of investment. A well-chosen piece of real estate will hold its value for years into the future, with its worth often increasing way beyond the original price. An added benefit is that it will always be desirable, never losing demand, ensuring that there will always be other consumers and investors willing to compete for its purchase.
However, there’s a steep learning curve, with lots of new knowledge and skills for new real estate investor to acquire. This can be challenging for those just starting out and can even put some people off before they take the leap. There are many steps in the real estate investment process that can intimidate new starters, from determining the best location to getting the best use out of a mortgage calculator.
But with the right information and an understanding of the process and best practices, new real estate investors can get started quickly and successfully, with the minimum number of mistakes and lost profits.
That’s why we’ve decided to offer this real estate investing guide for new starters, which defines the top six principles for getting started.
Define Your Real Estate Investment Goals
The first and most important step to real estate investing, especially when you’re just starting out, is to define your real estate investment goals. With so many possible strategies and pathways, and such large amounts of money at stake, it’s critical that new investors assess their options and clearly define their real estate goals.
Some things to consider include how much money do you currently have available for investment? How much risk are you willing to take with these funds? Are you looking for future growth or present-day monthly income? Answering such questions provides the fundamental basis on which you can define your goals and define a plan to achieve them.
Select a Real Estate Type
Another early step in the real estate investment process is to choose which type of real estate you’re going to invest in for your first investment.
If you have some funds available and you’re ready to get going, deciding on which type of real estate you want to invest in is the next logical step, after deciding your goals. This decision will be heavily based on whatever goals you’ve defined and will be closely linked with the answers you’ve come up with. The amount of money you’re willing to invest will determine the size, location, and style of the real estate you purchase. The level of risk you’re willing to take will determine things such as geographical location, property condition, and considerations of the surrounding area. Whether you’re looking for long-term growth or short-term income will determine whether you buy a cheap “doer-upper” in a developing area or a multi-room rental property in an established location.
There’s a type of real estate investment available for every investor. New investors must, therefore, choose which type of real estate investment is best suited for them.
Learn to Use Leverage and Financing for your Real Estate Investments
Another vital step in creating your real estate investment strategy is to learn how to blend leverage and financing to maximize your return on investment. Leverage refers to the practice of maximizing the overall value of your real estate portfolio through a mix of down payments and financing.
For example, rather than spending your whole funds on purchasing a single property for cash, you could split your funds into several loans down payments for other properties of similar or greater value. You’ve then significantly multiplied the overall value of your portfolio with the same upfront cost, thus multiplying your potential return on investment through property growth and rental income. A good mortgage calculator like Rightswitch’s can be extremely helpful in this process, as it enables investors to more easily and rapidly explore the potential leveraging strategies available to them.
Thoroughly Research Property Locations
With so many properties and locations to choose from, it can often be challenging to choose a location. However, this step is another essential principle in real investing.
There are many features to look for in a real investment, which all depend on the type of real estate you’re investing in and your investment goals. It’s important to study what features are most desirable for your chosen investment type and then do your research. Don’t be scared to extend your search beyond your local area; often-times, this is necessary to find the greatest properties with the highest value for money.
Identify the Best Mortgage Broker or Bank
With such large sums of money at stake, you want to make sure that you’re choosing the best mortgage broker or bank to handle your funds. You don’t want to be dealing with an organization that’s inexperienced in your chosen real estate investment or left with a loan that charges higher fees and interest rates than you could acquire elsewhere.
It’s therefore important to do some digging and identify the most suitable mortgage broker or bank for your chosen investment, not just in terms of affordability, but also in terms of experience, reliability, and customer service.
Create Your Financing Strategy
Once you’ve defined your goals, researched property locations, and identified your chosen mortgage broker or bank, it’s time to create your financing strategy.
There are many factors to take into account when creating your strategy, some of which may be unique for your chosen real estate type. What are the maximum and minimum loans you can take out, both in terms of duration and value? Are there ways of leveraging these options to increase your ROI and achieve your investment goals quicker? Are you expecting to reinvest your earnings or cash out on them to support yourself?
Once you’ve assessed your options and used a mortgage calculator to run through a suitable number of possible scenarios, you’ll have all the information you need to select a financing strategy that’s most suitable for your needs, your investment type, your real estate goals.