Investing in Today’s Real Estate Market
Investing in Today’s Real Estate Market
Are you wondering if now is the right time to begin investing in real estate? Perhaps you considered it, and then the coronavirus pandemic hit and left you with shaky plans. Even if you’d like to hold off on a major purchase, there’s no harm in gathering information so that when the time is right, you can move forward with confidence. With that in mind, here are some things to think about before you buy your very first rental or vacation property.
Your Finances Matter
Your credit score and cash reserves always matter when you go to buy an investment property. But lenders today are very cautious, given that unemployment is high, and even qualified buyers come at a higher risk. One crucial step you can take is to check your credit and make improvements where needed.
Credit.com says this starts by verifying the accuracy of your reports. You also need to take careful note of the things that need improvement, clear outstanding debts, and work toward increasing your credit limits. Of course, you do not want to incur any additional debt, and you are more likely to be approved for an investment property mortgage if you can put at least 20 percent down.
When you do decide to buy, there are also a few ways to protect your investments. Background checking your potential tenants, for example, can help you identify red flags, such as a history of nonpayment. You’ll also want to add extra security to the property itself, which will both help to attract the right kind of tenants and keep your assets safe. An alarm system is a good investment. However, you can also keep your home secure through low-tech measures, such as planting prickly plants near the windows and keeping the landscaping neat and tight.
Doing the Math
It’s one thing to protect your investment, but you also have to know how much of a return on that investment is likely to provide. This is easier said than done, obviously, since you can’t predict the market, but it’s possible to get a ballpark figure and to set goals. Most investors first determine cash flow, followed by a cash-on-cash return and then other markers, such as cap rate and appreciation. This is another area where your realtor can be of assistance.
Selecting a Business Type
Although there are a dozen business types recognized by state governments, some are more popular than others. One that is often selected by rental property business owners is the limited liability company, or LLC. This entity type is popular for a number of reasons, including the protection it provides for the business owner as well as its ease of setup. Depending on your state (which is where you create your legal business entity), there are typically about six steps involved.
The Day to Day
One thing many novice investors fail to think about is how they will manage the property once it’s been acquired and prepped for the public. This is time-consuming, and RentPrep explains that the process involves everything from marketing and advertising to collecting rent and handling evictions, which can be uncomfortable if you do not have experience as a landlord.
Your first property is definitely a learning experience, but it may also be wise to hire a property manager while you get your feet wet to ensure that you don’t get in over your head. A professional can market and maintain your home, screen tenants, collect rent, and create detailed financial reports.
Investing always means being diligent. However, with an uncertain economic future for the United States, diligence is your first priority. Don’t shy away from your dreams of investing, but remember the points above as ways to protect your own personal economics. And if you’re ready to make your investment property purchase, reach out to Carol today. Call 310-864-9738.
Thanks to Suzie Wilson of HappierHome.net
In her 40+ years, Carol Gilles, of The RealEstate Group, has helped first-time and multi-property investors find the best property for a return on their investment. Call Carol at 310-864-9738 and find out how she can assist you in becoming a real estate investor.