Real estate is no different than any other kind of investment you may be considering to earn supplemental income. There are tremendous opportunities. There are also tremendous risks, especially for the uninformed.
Don’t buy into the late night, get-rich-quick schemes you see on television. When it’s your money on the line, you must be very careful. Smart investors go into any situation with a wealth of knowledge about what they are doing. They get their questions answered before a transaction is finalized. With those precautions in mind, investment properties can be very worthwhile.
What’s the difference between a speculator and an investor?
1) Generally speaking, speculators are looking for properties they expect to go up in value in a short amount of time. They want to own the property for a period of time, then sell when they think it has reached it’s peak value. Investors, on the other hand, are looking at the income the property will generate while they are the owners. They too can benefit from an increase in value to the property but they are not banking on that one factor alone.
Do properties always go up in value?2) Historically, yes. But as we have witnessed in the past few years there is never a guarantee, which is what makes speculation a riskier investment choice. As an investor, you should be looking for long term valuation gains, not the short term spikes.
I’ve never owned a home but I want to buy an investment property.
3) Obviously a homeowner has an advantage when it comes to buying investment property because they have the experience to guide them through the management of the property. Any homeowner will tell you that maintaining a property requires diligent attention. If you have never owned property before, you certainly can still buy an investment property, just make sure you have knowledgeable people to advise you.
Always get it in writing.
4) It goes without saying that you need to be able to document everything in a property transaction. That is especially true with an investment property. If you are buying a rental property you can’t just take the sellers word for it when it comes to the income. Ask to see a copy of their most recent Schedule E form that they submit to the IRS as part of their tax return. This document will spell out for you what their actual income from the property was and their losses.
Location, location, location
5) It’s one of the oldest adages in real estate. Where you buy can largely determine the future value of your property. But buying in to a more exclusive location may also mean that your capital costs are high, thus lowering your actual net income after expenses. Study your market closely. It may make more sense in some cases to buy in less desirable locations where prices are lower, costs are lower, and the potential for net income is higher.
There is more than one way to be a successful real estate investor. With good advice from experienced professionals and a certified Realtor, you can make good decisions throughout the process.