Investing in property is a great way to build wealth, create passive income, and diversify your investments. It’s also a generally safe investment for first-time investors. But don’t think it’s just for those with a large amount of cash in their savings account – there are lots of ways to get started that don’t require paying cash for a property upfront.
Before entering the real estate investment market, consider these factors.
1. Why do you want to invest?
Real estate investments can be a great way to attain financial freedom, add to your retirement portfolio, or take advantage of tax benefits. There are plenty of other reasons for investing in property, but knowing your own reasons will guide you down the correct path to meet your goals and help you make decisions. While your path may change over time as you acquire more properties, your underlying goals will likely stay the same.
Write down your goals both long-term (20 years from now) and short-term (within the next year). Defining your goals keeps you focused and help you avoid costly mistakes.
2. How much can you afford?
It’s time to take a good look at your finances. If you don’t like what you see, don’t worry – there are many way to invest in real estate with little or no money. Ideally, by taking a look at your budget, you can find some extra money to invest or a way to generate more income until you buy your first property. This hustle will pay off in the long run.
Once you know how much money you have to invest, you can start to determine how much house you can afford. While your tenants will be paying you monthly rent in a rental property, make sure you account for expenses such as taxes, liability insurance, and your mortgage payment if you’ll have one.
3. Get your personal finances in order.
When purchasing your first investment property, you will likely need to obtain a loan in the form of a mortgage or Home Equity Line of Credit (HELOC) on your current residence. However, there are many other ways to get investment property loans and if you already own your own home you could buy a second and rent out your first.
It is best to clear all personal debt such as student loans, credit card balances, medical bills, etc. before you start investing. You will be more likely to secure loans for investment property at a low interest rate and your personal debt won’t hold you back in your investment goals.
4. What are your strengths?
What drew you to real estate? There are multiple ways to invest and discovering what strengths you bring to the table can help determine your strategy, which we will discuss below. Are you good at sales and closing deals? Do you enjoy home repair and upgrade projects? Are you organized and detail-oriented? Are you well-networked and a “people person”?
5. What is your strategy?
The two most common real estate investment strategies are flipping houses and buying rental properties, but there are many other investment strategies. As a new investor, you might consider purchasing a rental property, as this is typically more consistent income and easier to do while working a full-time job. If you do it right, you’ll have a positive monthly cash flow you can add to your wallet or use to buy another property and your tenants will pay your loan for you.
However, if you’re highly skilled at home repairs and have a large amount of cash to invest, there are advantages to flipping houses too. Take a look at your strengths and the amount of time and money you are able to invest to determine which option is best for you.
6. Grow your knowledge and network.
It doesn’t take a lot of money to be successful in real estate. It does take motivation and drive. Even (and especially!) before purchasing your first property, learn as much as you can about your desired property investment strategy. Network with others also interested in property investment and use professionals to make sure your first purchase goes smoothly. A good real estate agent can save you from a bad deal that could cost you thousands!
Clever Partner Agents are all top performers in their local market and can guide you through every step in purchasing your first investment property. Plus, they offer a Home Buyer Rebate up to 1% of the purchase price of your new property.