Real estate is one area of investment where significant mid and long-term gains can be made. Investing in real estate comes with some differences to buying a home for your family, and you’ll need to take a different approach when you look at the market for what will strictly be an investment property. If you’re thinking about buying your first investment property, or even if you’re just looking for some preliminary information while you plan your future, then these are three basic tips that every first time property investor should know.
1) Real Estate, Understand the 1% Rule
Any investment needs to be carefully considered based on the returns that you will make. If you purchase a property intended as a long term investment, then you’ll need to follow the 1% rule. This is a simple formula that calculates the minimum that you should be able to make back from your property.
Essentially, you need to be making at least 1% of the investment value for every month that you own the property. If you pay $200,000 for a property you intend to rent, then your monthly income should be at least $2000. Of course, more is better, so look for an investment where you’ll be able to make the greatest monthly returns.
2) Invest in Property to Re-sell
It can be beneficial to purchase a property with the intention of selling it off to another investor (or home buyer), rather than keeping the property and making long term returns from rental payments. Such properties need to be affordable enough that you are able to make a sizeable return upon sale.
3) Find the Worst House on the Best Street
Continuing from our second tip, it’s important to understand that location matters in real estate investment, just as it does when you purchase a property for personal use. Although it will take more research and effort, you can make significant returns from purchasing a low-priced property in a typically high priced area. These properties may be foreclosed, or could be in a condition that places them below market value. In many cases these properties can gain significant market value with just some minor improvements, and there are thousands of private real estate investors who have created profitable business models based on buying and ‘flipping’ affordable homes that are in high value areas.
Real estate investment is not always as straightforward as other investments like stocks or even currency trading, however, the additional effort can allow for significantly larger gains. Understanding the basics can help you on your path towards an investment model that works for you, with a sustainable future that allows for more financial freedom.
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