Experts Weigh in on Real Estate Investments for Beginner Investors
The real estate market is showing positive signs of growth, attracting more investors and first-time buyers to the market while offering a wealth of opportunities for everyone to explore. The market is stabilizing while growing at a slower but steadier rate, which makes it the perfect investment climate for beginner investors.
Despite the positive signs, many believe that the property market is still a tricky one to navigate. Unlike the financial market, investing in real estate often requires bigger initial investments, increasing the risks at the same time. Some real estate experts weigh in on how beginner investors can still take advantage of the growing market.
photo courtesy Charlotte Real Estate
The 1% Rule
There is an unwritten, not-so-secret rule that every buy-to-let investor needs to know, and that is the 1% rule. The 1% rule states that you need to be able to charge a minimum of 1% of the value of the house for an investment in a rental property to be feasible. This is a rule that many beginner investors still neglect to implement from time to time.
If you’re investing in a $200,000 house and you want to rent it out to tenants, the minimum you should get in rent is $2,000 according to the 1% rule. If for some reason you can’t charge that much in rent, then the property is overvalued and not worth investing in. It can also mean that the property is not suitable for rental purposes.
Mortgage and Credit Report
The cost of using a mortgage loan depends highly on the borrower’s credit history. Mortgages are a secured loan backed by the purchased property as collateral, but that doesn’t mean it can’t get very expensive very quickly.
Some elements in the credit report can substantially increase the mortgage interest rate you receive from top lenders. Having too many credit cards or a large sum of unpaid credit card bills is the worst since it will instantly classify you as a risky borrower.
Banks and financial institutions are also more careful when granting mortgage loans for non-primary properties. Unless you’re buying your first house, it is definitely worth it to take active steps towards improving your credit score before applying for the mortgage loan.
Understand the Costs
Don’t let the total costs of ownership catch you by surprise. This is another common rookie mistake many beginner investors still make when entering the real estate market. The actual price of the house is only one part of a complicated equation. There are administration and survey fees, conveyancing and other additional costs, and of course the costs of using a mortgage loan to take into consideration.
These fees and additional costs add up. Be sure to understand every cost element clearly before making a purchase decision because it will help you avoid unexpected charges and overpaying for the property. Don’t forget to also take these extra costs into consideration when calculating your return on investment or ROI.
Buy Wholesale
The market is filled with properties sold at bargain prices. They are not as perfect and ready-to-use as the more expensive options, but that doesn’t mean they’re bad investments. On the contrary, these properties can turn over a healthy profit in a short period of time when flipped.
Property flipping or real estate trading requires two things. First, you need to buy the property (or properties) at much lower prices. In select areas across the country, there are properties sold in groups and at wholesale prices. You can save a lot more by buying wholesale, giving you more room for repairs and improvements.
The second thing to keep in mind is the volatility of the market itself. Always make sure you have an exit strategy. Fortunately, there are many companies and fellow investors that will buy properties from individuals and other investors quickly. Companies that claim they can help you “sell my house quick“ can even close the deal in as little as seven days.
Location (Still) Matters
Last but not least, always remember that the location of the property matters. You want to look for a bad house that is being offered at a great price, but one in a very good neighborhood. You can always repair and improve the house to increase its value, but you can only do so much with the neighborhood around the house.
Based on these expert tips, it is clear that the real estate market is livelier than ever. A lot of new investors are entering the market, creating a stronger foundation for sustainable growth. Now is the perfect time to join the excitement.
Author: Carol Trehearn
