Many people think that investing in real estate is an easy way to make money. There are many risks when investing in real estate, however if you plan and properly prepare, the investment can lead to great financial rewards. Here are some of my top tips to help reduce the risk in investing in real estate.
1. It can be tricky to find a property that will maximize your investment if you are using a realtor that is simply looking for a quick commission. Since clients are less emotionally attached to the purchase realtors can be short sighted when it comes to closing on an investment property. Make sure to find a realtor that is best suited to your needs and takes the times to walk you through the pros and cons of each house.
2. Take your time to find a suitable tenant; make sure to call the tenants references, ask for a current pay stub and speak to at least two prior landlords.
3. When buying rental properties, it’s very important to make sure the location is the best you can afford for your budget. Make sure to research the potential area you are looking to buy in. A good indication of the area is if chains like Wal-Mart, Tim Hortons and Home Depot are moving in. All these companies will do major research on demographics and income before considering where to locate.
4. Know the property history. Every realtor will have this information, so make sure to ask for it. Information such as knowing how many times the property has been up for sale, how long previous owners had it for, if there has ever been a foreclosure on the property and if there are any encumbrances or liens on the property will help determine if it is a good investment.
5. If you are investing with others, make sure to have a partnership agreement. If the friendship falls apart, or someone loses their job and cannot pay their share of expenses you can account for what will happen in these situation in advance. This will save you in having to pay costly legal fees.
6. Determining how much you will make yearly on the property is vital in making the investment. This is a priority when making an investment, you need to determine how much money you could potentially make. This has many complex factors and using a realtor who can calculate the time value of money and easily workout these numbers for you will be a huge benefit in the long run. Ultimately, this decision is yours to make, but with good guidelines and an expert to help you this should help ease the initial risk.
7. Be careful with basement apartments and homes rented to students. Although these units can provide additional income, you must make sure that they are legal, comply with the fire code and have any required licenses to operate.
Investing is real estate is something that is complex and not easy. Be sure to take the proper precautions and in the end it can end up being very rewarding.
If you have any questions about investing in real estate please do not hesitate to contact me.