Real estate is an excellent way to diversify your portfolio. However, it is important to do the necessary groundwork before making an investment. You must first ask yourself what your end goal is. If you’re looking to get rich quick that is not likely to happen when you invest in residential real estate. But, if you’re looking for a long-term gain, rental real estate is probably the best route to explore; if you can make the numbers work. When it comes buying a rental property remember to think in terms of income, not appreciation.
Here is a list of the top 5 tips to keep in mind when purchasing a rental property:
- Buy at the right price: this will help you endure fluctuations in property value so you can profit, if and when you decide to sell and move onto your next project.
- Find the right neighborhood: rental properties are not known for making the best neighbors and it’s hard to get good tenants to live in less desirable areas. It can be difficult to get this right. You will get the most bang for your buck in solid working class neighborhoods, these are identifiable by the work trucks and vans parked in the driveways.
- Be aware of local rental regulations: it is safe to assume that you will need to bring your property into agreement with local rental regulations prior to you earning an income on the asset.
- Ensure proper parking is available: this goes without saying. Parking requirement can differ substantially on rental and residential properties. Do the research.
Stay close to home: Absentee landlords tend to have more problems that take longer to resolve and can turn into unwanted financial headaches, like fines and even citations
If you are not open to middle of the night phone calls from dissatisfied tenants, another investment option is the “fix and flip,” which comes with a different set of challenges to consider.
There are a number of hidden costs involved in flipping homes. If your idea of flipping is what you’ve learned from watching HGTV’s Flip or Flop then you’re mistaken. Flipping homes is not easy; and more often than not these projects end up being a flop! Renovation projects take time and money and the longer a project runs the greater the expense. However, there are still a lot of success stories out there. To succeed, you need to be cash flow rich and have the right project manager.
Choosing the best real estate investment strategy, requires you to do your homework. To manage your investment effectively and make a return, you need to be aware of the key factors that can impact the outcome. Before jumping into the market, research interest rates, examine the economic outlook and consider different property segments.