If you’re looking for a way to generate more income for your family, investing in real estate property is always a solid option. But before making any large purchases, you should have an understanding of the market and know how to calculate whether or not an investment will be successful. By following our tips below, you’ll be on track to make smart investments!
The Importance of Finding the Perfect Location
It’s been said many times, but it bears repeating: the most crucial aspect of real estate investing is finding a desirable location. You can renovate every part of a house except for its location, so it’s crucial to choose an area where people want to live. A luxurious home in an undesirable neighborhood won’t give you the returns you’re looking for. So what should you look for in a good location?
- The ability to do what you need to without much hassle or time commitment. Any normal person wants to make it to the grocery store without too much trouble.
- Less crime. Finding good tenants and avoiding having to deal with problems such as vandalism and theft is much easier when you consider a neighborhood with less crime.
- This location is secluded. Traffic is a nuisance for many reasons—it’s loud, it can be dangerous, and it decreases the value of your property.
- There are no businesses close by. Noisy traffic, litter, and vandalism are all more common near commercial properties.
- The proximity of schools to the home. Most families want a house that’s near schools for the sake of convenience, but these properties can also tend to have lower values because of the increased traffic and disorder in areas with high student populations.
- A number of amenities. To determine if a neighborhood is good, look for parks, shops, and restaurants in the vicinity.
The Importance of Knowing your ROI
To figure out if a real estate property is worth investing in, people use different equations. One way to do it is by using your “Cap Rate”. In layman’s terms, the Cap Rate is when you take your net income and divide it by the cost of the real estate property.
So let’s pretend you buy a house that costs $150,000. You charge rent at $1000 per month and have expenses that total around $200 each month. That means you’ll make $800 a month or $9600 annually. And let’s pretend you paid $150,000 for the home. You then end up with 0.064, or a 6.4% return on your investment. When you’re starting out, have a goal in mind for your ROI and really try to hit it! That’s how you know you’re making a good financial decision.
The 1% rule is commonly used by investors. This guideline helps to estimate how much rent you should charge for a property if it was purchased as an investment. The general rule is that the monthly rent should be 1% of the purchase price, but this percentage can depend on the location or market.
Some investors use the 50/50 rule to help manage their expenses. This rule stipulates that 50% of profits go towards costs associated with the property, such as repairs, taxes, and rent.
Avoid Getting in Over Your Head
People start flipping homes for different reasons: some might think it looks fun, while others have seen it on TV. Whatever the reason, there is much more to owning a successful investment property than meets the eye. If you are unfamiliar with rehabbing a home, we would recommend that you purchase real estate that doesn’t require too many repairs. It’s also important to have an inspection done beforehand to ensure that there isn’t any damage lurking around corners, or behind any walls.
Being an investor means more than just putting money into a business—it requires constant effort and supervision. When you invest in real estate, not only will your ventures thrive, but you’ll also gain valuable business experience. If you’re new to investing, working alongside other professionals will help advance your career!
Get in touch with us today if you’re interested in investing in property. We know all of the ins and outs and would love to help you find your perfect real estate fit!