So you want to be a real estate investor? Welcome to our world! Real estate investing can be a rewarding, but tricky business – particularly for those novice investors who choose to go it alone. Any tutorial on the topic of real estate investing for beginners would be remiss if it did not address the following fundamental considerations to be taken into account before embarking on any investment.
1. Location Does Matter
Surely, you’ve heard the Realtor mantra of “location, location, location” before. If you are searching for a new home and love the idea of living in a secluded area on the outskirts of town, you should go ahead, follow your heart and buy that dream home in the middle of nowhere. If, however, you are in the market for a condo to fix up and rent to students and faculty members at the local university, then you better make sure the unit you choose is within walking distance to the university buildings and amenities. It’s always about location.
The most successful investors target properties that are situated in populated areas where there is a readily available pool of qualified tenants. The best returns usually come from properties in areas that are not necessarily in the finest neighbourhoods, but in communities ripe for development and growth. Do your homework and investigate items like municipal master designs for growth, future transportation plans, etc. before determining where to invest your money.
2. Do Your Homework
Whether you’re joining in a crowdfunding venture or buying your own property to rent out, you must do your due diligence (or better yet rely on a professional who has already done that work for you). There are no shortcuts here – homework is required and will be collected. Savvy investors must be familiar with the myriad of rules and regulations that govern zoning, construction and renting in the community they are investing in. They also examine local demographics, business and retail trends, schools, transportation access and recreation and dining options. Part of your homework should also include taking a walk around the community and talking to local residents and business owners to get a better feel for the neighbourhood.
3. Set a Budget and Stick to It
Take a close look at your finances before making any investment and then decide how much you can afford to invest. This decision will be a very personal one since we all have different comfort levels when it comes to risk tolerance. A mortgage broker or REIT advisor may take a look at your finances and decide that you can afford to invest a certain sum of money, but if their number is not one that you are comfortable with – don’t do it! If you are investing in a property on your own, make sure your budget includes reserves and some general wiggle room for unexpected expenses.
4. Decide How Much Work You Want to Do
Property ownership comes with responsibility – everything from building maintenance and repairs to payment of taxes and insurance. If you are a handy DIY sort of person who enjoys puttering around the garage on weekends, then a single-family home or small multi-family investment might work well for you – especially if you can forego the services of a property management company. If, however, you have a full-time job, enjoy spending time with friends and family on weekends and haven’t a clue as to how to fix a leaky roof, then you are probably better off investing through shared ownership.
5. Manage Your Risks
Whether you’ve decided to buy a fixer-upper and flip it, or rent out a home in an up and coming neighbourhood with strong potential for redevelopment, or sink some money into a REIT, you must be aware that no investment comes without risk. The key to successful investing over time is to manage and minimize that risk. The best way to accomplish this is to do the hard work of investigating properties, crunching numbers and continually educating yourself on the many nuances that go into choosing assets that will lead to income and appreciation, or simply choose to reap the benefits of collective experience and knowledge through real estate partnerships or crowdfunding platforms.
There are no easy roads to accumulating wealth and most of us are not able to get rich from our salaries alone. Over time, through the ups and downs of markets, real estate investing has remained a proven winner. Enjoy the ride!