Entrepreneurs should save for the future with investments. Real estate is a great low-barrier market to enter. It’s relatively simple to understand and comes with low risks. You should understand a thing or two about the market and how to select the right property.
Choosing the wrong property from the very beginning minimizes your chances of successfully turning a profit. To avoid that mistake, keep your eyes peeled for a property containing the following criteria:
Low-Cost, High Value
“Even if you are ready to invest up to a million dollars in your first investment property, it is always a good idea to go for properties that lie in the lower to mid-range price brackets,” explains D.C. Fawcett of the Forbes Real Estate Council. “Some experts suggest the house that doesn’t cost you more than $150,000.”
This is because you’ll likely be required to spend more on renovations and repairs on the property. Sinking too much money into a property first thing will leave you scrambling for funds to keep up. It also keeps in you in the “safe zone,” according to Fawcett. “Even if you don’t hit the expected profits, you won’t risk losing too much on it,” he writes.
But just because you’re buying a more affordable home doesn’t mean you need to sacrifice the quality. Forgo size and other desirable features in exchange for a property with good bones in a good neighborhood.
A savvy real estate investor will have discussed their prospects with an attorney, who can advise them on legal responsibilities. Liability on properties can be one of the most expensive and riskiest parts of owning an investment property.
It’s important to purchase a home with limited risk of someone getting hurt. For example, a pool or play structure in the backyard of a rental can be very dangerous, not to mention expensive.
Additionally, a wood-burning fireplace poses extra risks and higher insurance rates. You’ll have to install a fireplace screen and maintain the chimney constantly to prevent accidents. Most landlords choose to block off access to the hearth with a beautiful fireplace screen and ask their tenants not to build a fire for safety reasons.
As you can see, there are ways around liability concerns, but you need to go into your property search with eyes wide open.
According to Kathy Fettke, CEO of Real Wealth Network, single-family homes are the best way to start when investing in real estate. You can always work your way up from there.
“It’s the simplest way to get started as a new real estate investor,” she told FitSmallBusiness. “The upkeep is easier than multifamily or commercial properties. With only a single tenant, there doesn’t tend to be as much wear and tear on the property and, when something breaks, you’ll only need to fix one thing.”
With a successful investment, you should be able to pocket enough profit to invest in another single-family home or a larger property shortly thereafter. Getting started small helps you develop a secure profit, though, so you can ensure future success.
Be Wary of Fixer-Uppers
Fixer-uppers are very tempting because you’ve likely heard about investors making tens of thousands on a single property in a short amount of time. However, these are risky for first-time investors who may be unfamiliar with the market and the amount of work that goes into these projects. Unless you’re a skilled contractor, you’re likely to end up in way over your head.
It’s okay to do some updates to your investment in order to increase the resale value, if you do the right ones. Matt Holmes, head of a real estate group in Denver, says that adding bedrooms is best.
“Adding a bedroom not only increases resell value but often pays for itself in the first month if you are renting out the property by room. Plus, adding a bedroom costs about 10% of a kitchen remodel, and it can be argued that in many markets also has a more meaningful resell value impact,” Holmes told Investopedia.
The overall lesson is to choose a home that can do well in any market, and if you want to make a few updates, choose low investment with high returns. This is the key to making money on your first investment property.