If you’re just beginning to invest in real estate, you’ll find that there’s a lot to learn. Real estate investing is more complicated than investing in stocks because of the financial, legal, and extensive due diligence requirements involved. That’s why it’s a good idea to give yourself a solid education before you purchase your first investment property.
However, before you get your advanced degree, it’s a good idea to familiarize yourself with the fundamentals. To that end, here are 5 basic tips for investing in real estate.
1. Location Matters
The old adage that “location matters” is most accurate when it comes to real estate investing. Before you fork over a down payment and put yourself in a significant amount of debt over a property, ensure that it’s in a good location.
Look for the worst house on the best street. That’s a principle you’ll come across quite a bit as you delve into further real estate investing advice.
You want to invest in the worst house on the best street because it gives you an opportunity to build equity. It’s a property in a great neighborhood (“the best street”) that needs some work (“the worst house”). You can invest some money to fix it up and sell it to someone else who wants a ready-to-move-in house in a fabulous location. Professional real estate investors call this “fixing and flipping.”
2. Look for Wholesale Properties
Investing in real estate is just like investing in the stock market in at least one way: you’re looking for the best deal. If you’re a savvy stock market investor, you probably won’t buy too many stocks at their high if you plan on holding them for a long time. Instead, you’ll follow the Warren Buffet principle of getting greedy when everyone else gets fearful. You’ll buy stocks that are beaten down and make a fortune when they turn around.
That’s what you want to do when it comes to real estate investing. Avoid paying “full price” for properties. Instead, look for so-called wholesale properties that are offered at a steep discount. Sure, they’ll probably need some work. Run the numbers and see if the investment in rehab is worth the ultimate selling price.
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