Modern-day investing has gone beyond investing in so-called traditional assets. It is still common for people to invest in mutual funds, stocks, and bonds. However, other investment avenues can produce long-term profits if a person is willing to put in the time and energy.
Real estate investing is one of these lucrative ways to build money long-term. However, it is not the right choice for everyone. For real estate investing to be successful, you need to be dedicated and willing to do research and make a plan. Here are three tips for beginner real estate investors.
1. Protect Yourself
If you are thinking about investing in a property, learn about using an LLC before deciding on this option. An LLC is a limited liability company. People create limited liability companies when they want to mitigate risk.
The LLC owns the properties. If anything happens to your investment properties, you are not personally responsible for them. If you don’t have an LLC and something happens on the property, you could be financially responsible. That financial responsibility could negatively impact your retirement money.
An LLC can give you something called “checkbook control.” This is beneficial if you need to access retirement funds to make real estate purchases quickly. First, you open your LLC with your direct IRA. This makes your account the business and you the business manager.
With this process, you are able to get access to funds as you need them. This doesn’t mean that you won’t need a custodian or give you the freedom to take funds for other use. Any funds removed from the IRA must be used for the property, and all withdrawals need to be informed to the custodian.
The benefit is that instead of being charged for multiple account changes, you only need to report things one time. This means that you are able to invest in your real estate and pay fewer fees.
2. Discover Your Purchasing Power
Real estate investing for beginners can be challenging because they don’t know where to get the money or how much of their personal money to use. Evaluating your current purchasing power is an essential step in creating a successful real estate strategy.
A great source of income is leveraging your property. In real estate terms, this refers to your ability to allow your tenants to pay off the property loan. If you do this, your ROI is higher as you can invest in a larger property with a smaller down payment. The smaller your down payment, the more cash you have to purchase other cash flow real estate investments.
Financing is a great tool in determining your purchasing power. You may be surprised to learn that you qualify for more financing than you thought you would. If you qualify for additional
financing, you may be able to purchase multiple high-value rental properties. This increases your ROI and allows you to generate more financial assets.
3. Make an Investment Property Buying Checklist
Making a checklist can help mitigate risk while putting you in a great position to increase your return on investment. Your checklist should include the following.
1. Inspections: A home inspection will let you know if there are any red flags in a property you are considering. Unexpected repairs or renovations could make purchasing the property drastically more expensive than you expected.
2. Get an Appraisal: Property appraisals allow you to analyze past, current, and future property values. If you don’t get your property appraised, you are left guessing what it might be worth. An appraisal gives a good indication of how much you should be charging in monthly rent for a rental property.
3. Get Proper Insurance: A landlord insurance policy can cover you and your property. Get a quote on these insurance policies before renting out a property. This will help you accurately gauge monthly expenses and set the rent at a price that creates positive cash flow.
4. Visit the Property Several Times before Purchasing: View the property several times and at different times of the day and week. This will help you get a feel for what your tenants will experience while living on your property.
With real estate investing, knowledge is power. Successful investors surround themselves with trusted advisors and industry professionals. Doing this can help you achieve your unique investment goals.