Investing in real estate business is not at all like investing in the stock market, or in most financial markets for that matter. The success of an investment in the real estate sector requires a complete understanding of the market, and the willingness to ‘get dirty’ hands.
Here we share with you to take care when investing in real estate business
The only way to know if you are receiving a good offer for a property is to know what the prices in your area are. It is not enough to go by the general estimates of property value in the media. You need to get your real estate license and join with a local agent to have access to the closed prices in the last transactions. This point is important: market values are established by closing sale prices. Depending on market conditions, there may be a large variation between quoted prices and closing prices. Only closing important prices!
If you are planning to purchase a property to be rented, you will need to know what the current rent in the area is. The only way to make intelligent investment decisions is knowing the rental income of the area, that is, what gives a potential income of a property. The best way to find out is to ask an appraiser – the advertisements with proposals for new rents only indicate the prices they ask for, not the real rents.
You can not afford to pay more
If you buy a house to live for 20 years it may not matter too much what you pay for it. But if you intend to allocate the property for an investment, you must buy at prices below the market. This will be essential if you are going to rent the house or speculate on it for your sale.
It has a strong Capital Investment
If you are a real estate investor, you will have to have much more cash in hand to enter the investment than you would have if you are going to buy a house where you plan to live. If you don’t have enough money, i suggest you to invest in SMEs.
Plan a minimum down payment of 20 %
There are no zero mortgage programs for investor properties. You must plan on a minimum initial payment of 20% of the purchase price. There may be mortgage programs that advertise lower payments, but you probably will not be able to access them. They are only oriented to the first housing or habitual residence.
Plan an additional reserve fund for the necessary repairs
If you are looking for properties at a bargain price, there is an excellent possibility because they will be deteriorated and a very low price. You will need a lot of cash to invest in the property, to the point where you can decapitalize. That will determine how quickly you are able to rent the property, or even turn it around.
Have a vacancy assignment
This is an important issue and many investors try to ignore. If you are going to invest in real estate business, you should fully expect that there will be months when you will not receive rental income. You have to be covered with enough cash in case the cash flow of the rent suddenly stops.
Be prepared for tenant change repairs
You will need budget money to make additional repairs each time a rental changes hands. It could be something as insignificant as a retouching paint job or a general cleanup. But it can be something more extreme, like having to have a whole house full of obsolete contents, or major damage to walls, doors, and appliances.
Know the Law and protect yourself
When you are investing in real estate business, you have to be aware of the laws involved in the owner-tenant relationship. Even though you are the owner of the property, the options are often limited. The LAU or the local law of Tourist or Temporary Leases is necessary to know them to avoid unexpected surprises.
Here are some examples:
Check the future tenants
Preventing problems is always preferable to be caught by them, and the best way to do this is by making tenant’s solvency checks. You must plan credit checks and criminal background checks on all potential tenants. You must also verify the record of defaulters or if you are in the Asnef or RAI.
Even if a tenant does not pay the rent, you will have to wait a few months for the eviction (usually not less than 30 days). In some communities, the tenant may even be able to get a stay of execution, especially if they have small children. You will have to be very familiar with the laws and with your rights as an owner.
Ask for a security deposit
According to the LAU (Urban Leasing Law), a 1-month deposit or security deposit is mandatory, which will be deposited in the relevant Community Agency. But you depending on the quality of the property, and whether it will be furnished or not, will be free to agree a month or two or three additional months of bail. You can also ask for a guarantee of two or three months to cover against unpaid rent or property damage.
Different insurance coverage
You should understand that homeowners insurance for an investor is very different from what it is for an owner-occupant. As an investor, you have to make sure against the possibility of injuring tenants. Your regular home insurance does not cover that type of situation. You may also want to consider obtaining general liability insurance coverage, in case a tenant, or one of your guests is injured on the property you decide to file a lawsuit against you.
Four basic ways to make Money in real estate business
Before buying your first investment property, you must first have an idea of how you can earn money and therefore get some benefit.
There are four basic ways to do this:
Buy to get some income
It involves the purchase of the property in order to rent it to produce a stable monthly income. In order to do this, the property will have to be acquired at a price low enough for the rents to cover the basic pay of the house (mortgage). This is easier to do in some areas than in others. In some areas, where property assets are in a depression, it is possible to buy very cheap assets, although you run the risk of not renting it. In others, real estate is so high that it is almost impossible to obtain a positive cash flow. You have to find the middle term or have good advisors.
Fix and turn around
This usually involves the purchase of a property that requires a significant amount in the reform and repair of it. Because the property is in poor condition, you will pay well below the market price. You will have to be able to give a reasonable estimate of what it will cost to fix the property before buying it. If you can buy and repair for less than what can be sold. You can make a large amount of money quickly.
Buy with discount
Every once in a while you can buy a property at such a low price. That you may be able to sell it shortly thereafter with a substantial profit. Again, you have to be very aware of the market values in your area in order to take advantage of the situation. For this, it is important to have a strong liquidity cushion to undertake the investment immediately.
Buy and retain
Similar to what you would do with stocks, keep ownership for years or even decades to obtain the greatest benefits over time. That will give you a stable and permanent cash flow over time.
Real Estate Investment is not passive
There are a lot of books and programs out there that promise you that you can get rich in real estate business without having to do anything. All of them are complete nonsense!
If you ever owned your own home, you already know that real estate is not a passive investment. The asset must be maintained and the necessary repairs made permanently. And, finally, you will have to start replacing the damaged components.
Now add the tenants in the mix, and keep in mind that you will have to find them, rate them, keep them happy. And then deal with their exits, which are not always pleasant.
There is nothing passive in any of that!
Investing in real estate business can be very profitable. But you have to be careful and keep an eye on the asset – and then be prepared to work.
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