Investing in real estate offers some advantages over other types of investments, such as stocks, mutual funds, and index funds. In addition to tax incentives, building equity, and the potential of increasing the property value, real estate investing can also provide a larger return on investment. However, real estate, much like any other type of investment, isn’t without risk and working out a good strategy will help you minimize your risk of loss.
Resist the Urge to Borrow
Whenever possible, it’s better to buy rental property with your own cash savings. If you must borrow, you should be able to make those monthly mortgage payments without having to rely on the rent received from your tenants. In other words, those rental payments should be 100% profit. This will save you from future losses that will result from a vacancy.
Keeping Up With Property Management
Managing a rental property includes attending to a variety of needs, including setting aside money to cover taxes, ensuring all utilities are in good working order, and keeping up with repairs. In addition to the operating costs that these issues represent, there’s the time it takes to attend to these issues. The management of your properties can become a full-time job in itself, which can be problematic for investors who also work full-time. This is why many investors find the added expense of hiring a property management company worthwhile. For a fee, they can take over the day to day concerns of maintaining your rental properties.
Conduct Detailed Research
For each property you plan to buy, take the time to conduct very thorough research. Evaluating the market is just one step in this process. Also, try to find out if any future commercial or industrial projects are planned for the area, which may affect the value of the property. As with any real estate investment, a proper title search is also necessary for finding out if there are any past liens or claims against the property.
As you get started, it’s smart to choose smaller, less costly investments, which you can use to learn the ropes. For instance, buying a duplex and occupying one unit will reduce your expenses, which helps you earn a profit. This can also help you learn from mistakes without allowing your errors to devastate your finances. As you gain more experience, you’ll be better equipped to take on larger investments with a greater ROI potential.