Investing in real estate is a common practice in the United States and all around the world. Real estate investors are able to tap into the momentum of the marketplace in order to create significant wealth gains that boost their net worth in monumental ways. Homeowners enjoy a unique financial power that renters can only dream to one day possess, but this isn’t the only reason to get into the residential property market for yourself.
Investing in real estate allows borrowers to engage with powerful net worth-boosting assets, even if they can’t piece together the entire purchase cost all at once. Saving for a down payment on a home can be done in a few years, and dividend income from other asset classes is often the primary source for these funds when approaching the purchase of a rental property. Lenders play a significant role in the process of homeownership and real estate investing, but there are many more considerations to make (such as the prospective interest rate, your credit score, a potentially larger down payment, and even the appraisal value that a mortgage company or seller provides for the property).
With these four tips, you can plot a course to a new level of financial independence as you plan for your first—or next—foray into the real estate market as an investor and home loan borrower.
1. Always begin with the finances.
Your home loan is the most important consideration to make when thinking about the new residential property for your portfolio. Looking for a home loan guide that can help you hammer out the minute details of a borrowing opportunity is a crucial step that all homeowners should make when planning for a new loan of this magnitude. While lenders differ in the small details, the broad strokes remain largely the same throughout the years. The first thing you need to realize is that a single percentage point can equate to tens of thousands of dollars in added monthly payments, so securing the best mortgage loan possible is a crucial step in the right direction of profitability.
Real estate is different from the typical investment asset in that borrowers can enjoy all the dividend benefits of property without owning the entire asset outright. With a 20% down payment as the industry standard, you can earn 100% of the profits while using a portion to pay down your monthly payment obligation. Over the years, your payments will decrease or remain static while the incoming rental income will continue to balloon alongside the underlying value of the property. Thinking of real estate investments as financial assets first are the best way to ensure profitability over the long term.
2. Target homes that are on the market for bargains.
Homebuyers are always looking for a great deal on any real estate property, but when it comes to real estate investing, this is particularly important. Finding homes that are in foreclosure or that have a decent appraisal value but need quite a bit of work to make them market-ready tends to offer great bargains for home hunters. Look for homes that are selling at a discount in the areas you have honed in on. They might need some additional care, but the discounted rate is worth it.
3. Include modern updates that will excite tenants or potential buyers.
Whether you’re looking to flip the home or leverage it to create rental income, including quality of life upgrades is a must. Surveillance solutions are a must for any real estate investor. Not only does the addition of security cameras on the property afford additional peace of mind to you, but anyone interested in the property will take comfort in these same additions as they prepare to sign any required paperwork and move in.
4. Prepare for the long haul.
Real estate investing is a long-term commitment. In order to really reap the rewards, you’ll need to employ an investment strategy that will persist through market bumps and shakes over many years. Real estate shines when deployed as a ten or more year strategy. This is because the real estate market is on a long term upward trajectory, making the resale value of any property that you own a future winner as well.
Make sure you build a strategy for success that suits your needs and the local market for the best possible returns.