If you’ve been toying with the idea of investing in property, you may have an idea in your head about how it will go. You’ll find a property, buy it, fix it up a little, sell it for profit, and repeat. While this is ideally how the property investment process works, there is a lot that goes into setting yourself up for success. Before you dive in, consider these five tips for getting started in property investing.
Set SMART Create Goals
Getting into property investing without clear and attainable goals is like getting into the car without an end destination. Without a definite endpoint, you’re driving aimlessly around without any purpose. And more importantly, you’ll never get “there” because you never defined where “there” was. The best thing you can do for your budding investment career is to set SMART goals. Specific, Measurable, Attainable, Relevant, and Timely goals. This is not saying “I want to be a millionaire by the time I’m 45” (although that is a great goal) it is saying “I want to be a millionaire by the time I’m 45, which means I will need to sell X amount of property every year for X amount of years. I’m going to do this by A, B, and C.”
Sitting down and creating specific goals that can be measured and realistically attained will help keep you focused. It will give you a filter to run all of your investment decisions through. Will buying this property help you get to your goal? If yes, go for it. If not, let it go. If you’re not sure, check with a mentor or seasoned investor who can give you wise advice.
Find Your Niche
There are so many different types of property to invest in. There are commercial properties, single-family homes, multi-family homes. Some homes need to be fixed before they can be flipped, and some homes are basically move-in ready. When you don’t decide on your niche, you are giving yourself room to spread yourself thin. You may find yourself dabbling in various types of property, which doesn’t allow you to become an industry leader or expert in any of them.
One of the things that many first-time investors don’t realize is that finding your niche takes time. As you begin to invest in different types of properties, you slowly start to understand the properties that excite you and you are good at, and those that are overwhelming or uninteresting. The sooner you discover your niche, whether its first time home buyers or multi-family buildings, the sooner you can pour all of your time, focus, and energy into becoming an expert in this particular type of property.
Focus on Finances
Once you have clearly defined your goals and determined your niche, it’s time to focus on finances. Real estate investing is one of those investment strategies where you need to have money to make money. As a capital sensitive investment strategy, first-time investors will need to have a significant amount of money up front to start the process. One of the things you can do to put yourself in the best financial situation to invest in property is paying down your debt. If you have credit cards, student loans, or other outstanding debt going into the investment process, it may be harder to maximize your profits. If you have the time and the resources, use the snowball effect to minimize your debts before putting money towards an investment property. While you do not have to be entirely debt-free to be a successful property investor, it does help to start with as little unsecured debt as possible so you can be in the green sooner rather than later.
Once the debt is paid down, it is time to focus on your deposit. Investment properties typically require a larger deposit than owner-occupied properties.
All too often, beginner investors look at the price of the property and assume that is all that they need to pay. Unfortunately, there are a variety of different fees and costs associated with buying an investment property. It is important for the investor to calculate operating costs as well as leave room in the budget for unexpected voids and costly maintenance repairs. It is common in the industry to assume that you will spend 10% of the purchase price on maintenance, taxes, and management fees. Being realistic and diligent about calculating investment costs will help prevent unexpected and expensive surprises during the process.
Find A Low-Cost Home
Even if you have the means to buy a luxury property, it is highly recommended to start your investment journey with a low-cost home. This will help you get an idea of what to expect when investing in a property. Also, look for a home that will not require a lot of maintenance repairs upfront. The whole idea is to put as little into the property in order to maximize your returns. Do a little bit of research about the average rents in the area. Take this number and multiply it by 12. This should be your budget window for your first investment property.
Location also plays a huge part in choosing the right investment property. You may find an affordable home that only needs a little work, but if it is not in a location that is suitable for tenants, you may start losing money right away. The location you choose should be close to local conveniences, and remember to pay attention to the school catchment area. Even if you don’t have kids, a vast majority of qualified buyers will and will be interested in living close to decent schools. Look for properties in areas that are popular for tenants.
Stay On Top Of Property Market Trends
One of the smartest things you can do as a beginning investor is to seek new, updated information consistently. Knowing the local neighborhood is one thing, but being an expert in the fundamental ways investment properties impact the market is another. New investors can get their information from a variety of trusted sources, such as Rightmove, Zoopla and NetHousePrices. Attending networking events, listening to podcasts, and reading books are all great ways to stay abreast of the most recent property investment trends. The more you know about the market, the more confident you will be entering an investment situation that requires quick decision-making. Reaching out to seasoned investors who have more experience in this arena is another way to stay on top of local property market trends. There’s always someone in the industry who knows more than you do, and picking their brain and learning from their mistakes is one way to avoid making your own.
Everyone has to start somewhere. As a new investor, there is a lot to learn, most of which can only be learned through experience. However, if you start your adventure in property investing knowing these five tips, you’ve already set a solid and sturdy foundation for your property investment career.
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