Basics of Residential Real Estate Investing

If you’re interested in investing in residential real estate, you’ve probably made a wise choice. Approximately 98 percent of the world’s millionaires made their fortunes in real property. And the old saying still goes: “They ain’t making any more land!” As the world’s population continues to rise, it stands to reason that real estate will continue to be a solid investment. Even with the industry’s period peaks and valleys, the need for housing will inevitably continue to rise.

But just like any other investment, you must study and learn the market if you want to be successful. So, how do you make money in real estate? To put it simply, you must adhere to another old maxim: “Buy low – Sell high.” At the end of the day, it really is that simple. Here are some thoughts on applying this principle as you begin in real estate investing.

Don’t get caught up in the “sale” of the property. New investors sometimes get so excited about the transaction actually going forward that they lose sight of their true investment goals. Without experience or a background in real estate it’s easy to get in over your head. The bottom line is that you need to find investment properties that are undervalued, and you need to do your research before you make your offer.

The best way to determine the true value of a property is by comparing it with similar properties in the same, or at least similar, areas. This is very important, because the location of a property can drastically affect its market value. Take note of the features of each property. Keep track of how long they’re on the market before they sell, and the price that they sell for. Once you have a good understanding of the values of properties in your area, you’ll be able to spot when one is undervalued - perhaps due to a motivated seller. And don't be afraid to negotiate for the best deal possible.

Become aware of the market. Spend some time examining market trends. Use the resources that are available to you – local real estate papers and agents. You’ll be able to get quite a bit of information from them.

Be careful not to make the mistake of renovating according to your own personal tastes. Keep an eye on what's moving quickly in the market as well as the advertised features of newly-constructed properties. Use this information to make your upgrades as market-friendly as possible. Concentrate on the most profitable renovations, such as kitchens and bathrooms. These will add the most value to any residential property. Updated lighting can also be a good investment. And new paint is a given.

Set, and be constantly aware of, your own budget. Know how much you can spend. Become familiar with the price of materials and labor in your area, as well as the time frame to have specific jobs completed. Many seasoned investors will tell you to then double or even triple that amount. Regardless of whether you subscribe to that advice or not, the more research you do the more accurately you’ll be able to set your budget and stay within it.

If you keep these basic premises in mind as you begin your investment career, you’ll always remember that real estate investing is indeed a business and it must be treated as such. After all, you’re in it for the money. If you learn to make wise choices and adhere to your goals, you’ll be well on your way to your financial dreams.

blog comments powered by Disqus