Becoming a real estate investor can be a really risky process. There are no guarantees that any property you purchase will be a success rental property. However, it can be a great source of extra income if you do it correctly. To maximize your profits, here are three things to do first to prepare yourself.
Do some research
Before purchasing a property, first, research the market. Learn about the area the property is located in, and the average value of other homes in that area. Does the area attract the type of clients that you’re hoping to have rent out the house? Will it make the returns you’re expecting? Instead of focusing on your personal likes and dislikes about the home, focus on the market and what potential renters would see.
Calculate expenses beforehand
Look at the money you currently have and how much you can borrow to secure a down payment on the property. Keep in mind that you’ll have to pay the full 20 percent as mortgage insurance doesn’t generally apply to rental properties. Next, determine how much it will cost to purchase and renovate the house, as well as the operational costs. Then, figure out how much you’ll list the property at and make an estimation of what your profit will be once you subtract your expenses. While these are rough numbers and may not represent how much profit you’ll actually make, it gives you a good idea of whether or not a piece of property is a sound investment.
Choose low-cost for your first investment
Your first rental property should be one that falls into the low- to mid-price range bracket, even if you have the means to afford something more expensive. Mine was roach infested and in need of serious renovation. You’ll have to invest a lot of money into the home in terms of renovations and repairs. Because it’s your first investment, you want to stay in the safe zone by keeping your investment as low as you can. That way, if you don’t receive the returns that you expected, you aren’t losing as much money as you would on a larger investment.
Once you successfully purchase and rent out your first piece of property, every subsequent investment from there will become easier and easier, as you’ll be more knowledgeable about the process.