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What You Need to Know Before Investing in Real Estate

Aug 28, 2018 06:00AM ● Published by Alyssa McGinnis

By Tracie Storo

Have you been thinking about investing in real estate? Many people today work for money, but the smart ones, let their money work for them.  That is what investing in real estate does for you: You take the money you have today, invest it, and allow it to create a nest egg over time. So, when the time comes that you no longer want to work, you have money to fall back on.  

If you continue to invest wisely, you will have continual cash flow.  

Here are some essentials you should know before jumping into the real estate investment game:

  1. Know your financial situation and know how to purchase real estate. Understand what you are able to consistently invest and never buy under your name. Speak with a financial advisor on what your best options are and how to create a business under which you buy under. Have a plan and a goal before you start investing.

  2. Know how much time you have to devote to your investment.  There are many types of property you can invest in, pick one that aligns with your commitment.  If you have less time a laundromat or storage units might be something you are interested in. If you have more time or enough income to hire property management, you might consider investing in rental property, residential or commercial.

  3. Remember, real estate Investing is a business; you aren’t buying a personal home.  Don’t let your emotions make the decisions, you won’t be living there.  Always run the numbers to know if the property will make enough profit to cover all of your expenses.

  4. Before you purchase an investment property, build a network of people to help.  You don’t want to do it alone so, consider property management, maintenance, financial advisors, lawyers, real estate agents, lenders, etc., to help you along the way.

  5. Real estate Investing is a learning process, in which you learn by doing.  If you are a little timid in getting started, start small and gain the knowledge to grow in your investing.

Now that you have the basics about investing, it’s time to find your investment.  Here are some additional things to think about when looking for the right property:

  1. Look at lots of properties to see what is the best type of investment for you. Narrow down the options by looking at your plan and goals.  Don’t wait for the perfect one, remember this is a business, not your personal home.

  2. Make sure you know and invest in a good location & neighborhood. You can change the property but you can’t change its location. Location will determine your rent levels, potential tenants, and yearly expenses. Do some research on the area in which you plan to invest. Study the home sales, crime rates and areas of interest in the neighborhood.

  3. If you are thinking of investing in rental property, consider who you are renting to. Tenants can be your best friends or your worst enemies. Make sure to check potential tenants background, credit and rental history. Consider investing in Real Estate Investment tools to help you with these.  You could also hire a property management company to help you get started.

Real Estate is a great avenue to start investing your money.  There are varied ways to get started. Find what best suits you by first meeting with a financial advisor. Then create a plan and set goals for what you want your money to do. Start small and work your way up to something bigger and watch your money start you work for you.


Tracie Storo is a Broker Associate with RL Real Estate Group in Sioux Falls

 

Basic terms to know when investing in Real Estate.

Net Income= income - expenses

Cash flow= net income - debt financing (loan)

Return on Investment (ROI)= cash flow/ total investment

Cap Rate= net income / property price

Cash on cash return = cash flow/ investment

Total ROI= total return (cash flow, rent, appreciation, taxes) / investment


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