Residential real estate is one of the best-known ways to earn an income in the real estate.
But it's more complicated than buying a property and signing tenants. You have to know what you're looking for--in a market, in a property, in a risk assessment.
Here are three things that new investors need to know before investing in residential real estate.
Look for a Healthy National Market
First things first: you need to look for a healthy national real estate market. For newbie investors, this is non-negotiable.
Experienced, savvy real estate investors can spin a profit in a weak national market, even knowing that the odds are stacked against them. But if you're new to the game or you want a hands-off investment strategy, a weak national market is a guaranteed way to lose money.
That's because rising interest rates in a weak market can kill a real estate deal and price you right out of the market--especially if you used an adjustable-rate mortgage to purchase the property.
If you're inexperienced with residential real estate investing, go for a market with declining interest rates. Demand is often higher and you'll get financing cheaper than you would otherwise.
Don't Buy a Fixer-Upper
Now, let's say you see a property with good bones and think you could really make good money on it with just a few renovations.
It's the death knell of many new real estate investors.
If you're buying your first property, you're learning the ropes. Unless you happen to be lucky and know a contractor who will do decent work for cheap, you're more likely to lose money than earn it.
You have no idea how to flip a property. You have no clue what the turnaround time should look like. You have no clue what the turnaround time is. You have no clue how much money you should spend.
And just like that, you've landed yourself a money pit.
If you're a new investor, save yourself the trouble. Invest in a property that's ready to live in.
Know if It's the Right Fit
Finally, make sure that residential property investment is the right fit for you.
Sure, people always need houses, and yes, rental income is a great passive income strategy, but that doesn't mean you should invest in them.
Are you ready to be a landlord? Are you prepared to handle maintenance, or are you going to hire someone to do it for you? You can, but it will eat into your profits. That gets easier as you add more properties to your portfolio, but for the first one or two, that makes an appreciable difference.
You need to assess whether you're ready to handle the risk vs. reward involved in residential real estate. Is it the right level of risk for you? Is the reward worth the time involved?
If not, don't be shy about shopping around. There are lots of ways to invest in real estate without buying a property.
Looking to Invest in Residential Real Estate?
If you're looking to invest in residential real estate, you've come to the right place.
We help guide investors just like you through the process of finding worthwhile properties. Whether you need to learn about options like apartment syndication or you just need to find the right market, we can make it easier.
If you'd like to find out more about how we can broaden your investment options, use our contact page to get in touch.