New home sales set a blistering pace in the United States in 2020’s second quarter, rising 43.2%.
And although the fallout from the pandemic isn’t fully known, in 2019, some 44 million families in the United States said they were renters, according to statistics kept by iProperty Management. And from 2010, the average rent on these units climbed by 31 percent.
So now might be the best time to get into real estate. But an investment property for beginners can be a tricky proposition. You have to make several determinations ahead of time to ensure this investment course is right for you.
In the following article, we’ll examine five things to consider before getting into the real-estate game.
1. Investment Property for Beginners? Rent or Resell
Your investment property needs to make money. That’s why you’re getting into real estate in the first place. So you need to determine if you plan to flip your investment for resale or if you plan to rent the property out. A pro to becoming a landlord is that you can count on a steady cash flow if things work out. Flipping a home can mean a good return on investment in the right market, and long-term returns on real estate are usually net positive.
However, renting means actively managing a property or (and you should consider this) paying someone to do it. Also, flipping a property means possibly hiring contractors or suffering sudden downturns in the market.
You need to determine how much risk you are comfortable with before you move forward.
2. Location, Location, Location
Most people want to own a rental near where they live. That means that if any headaches crop up, they can deal with it themselves. But a costly neighborhood (Hello, New York, and San Francisco.) may make the financials of buying high and renting a strain on positive cash-flow.
Look for areas where you can buy at a price where the rent calculation makes sense. Mashvisor and the Department of Numbers both have research tools to help you make this decision.
3. Size Matters
Do you want a single-family home? Duplexes? Something bigger, like an entire complex? One good way to figure out what size of real-estate venture you want is to determine the demand for and saturation of properties in the area.
Browse the available inventory on real-estate sites or check with agents in the area for what is in demand. Also, consider the square footage, type of construction, and the number of bathrooms and bedrooms per unit.
4. Conduct Tennant Research
Do your research on the person who’s moving in. A quality renter can make or break your investment.
Ask for references, and do a background check through online services. You may find it difficult to course-correct if you let the wrong tenant into your property after a signed deal.
5. DIY or Management Company?
Leaky roofs, landscaping, heating, and plumbing are all landlord headaches. You’ll need to decide how much money and time you are willing to spend on managing the property yourself. Of course, you can hire a property management company. This may cut in a bit on your bottom line, but it may prove beneficial to have experienced managers at the helm until you get your real-estate sea legs.
Is Real Estate Right for You?
The answer is probably yes. With all the options available to either rent or own, the real estate market is still a good bet. Investment property for beginners can prove risky for the uninitiated, but with some research and time, these properties can turn a sizable profit.
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