Reading Time: 4 minutes Steps When Buying Your First Real Estate Investment
This is a collaborative post with Ellie Jo about Real Estate Investing.
There are plenty of good reasons why you might want to start investing your money into real estate. But there are also plenty of challenges that you’ll face along the way as well and they should not be ignored.
Buying your first investment property is a big step. It’s certainly not something that you should rush into without developing a plan. Find out about the approach you should take below.
Get Your Finances In Order
The first step is to make sure that you’re taking all the right steps to get your finances in order. Otherwise it’ll make it much harder for you to get the best mortgage. Investing in real estate also requires much more record keeping. It’s important that you get in the habit of creating and managing to a budget. Quicken is a great tool to help you with your record keeping. Make sure that this is one of the first things you think about before you go ahead and start looking for houses to buy.
Determine Your Niche
There are many opportunities to invest in real estate. You can invest in Commercial, Residential or Industrial. As a first time investor, residential is a great starting point. Residential also has lower barriers to entry. Next you need to decide a niche. For example if you prefer residential, then do you want to do single family, duplexes, multifamily, or apartment complexes?
We personally prefer single family. We have owned single family homes for several decades now. Single family homes are easier to sell if you choose to, and you don’t need to deal with tenants interacting with other tenants.
Determine A Location
Pick an area that fits your comfort level. We personally preferred only buying rental houses that we would be comfortable moving into if we ran into financial issues (e.g. lost a job). If you pick one neighborhood you can also become an expert on that location. It lets you understand what houses are worth, what rents to charge, and what type of people rent in that area.
Research The Market
Before you buy any home, whether it’s a home as an investment vehicle or a home to live in, you need to make sure that you’re doing everything possible to research the market. You want to know where the best deals are found and how much you’ll need to pay to get a home in a particular location. From an investment point of view, you need to make sure that there’s a market for the kind of home you invest in. There needs to be that rental demand.
Become A Businessperson
This is now a profession and a job, and you need to look at it from a business perspective. There’s always a big risk that comes with looking at things in a way that’s too casual or loose when you’re a landlord. You need to make sure that you’re making decisions based on the data and on finances and not based on your emotions too much. It’s about making money and being profitable, so becoming a businessperson is a smart move.
Start Relatively Small
When you’re just buying your very first rental property as an investment, you’ll want to start relatively small. The truth is you’re going to make mistakes and get things wrong when you’re brand new to being a landlord. It’s one of those things that you have to learn more about on the job. You want to make those mistakes on a smaller investment rather than on a bigger one. You can always go for bigger and better things later when you have more experience.
Find Affordable Financing Arrangements
You’ll need to make sure that you’re finding the right financial arrangements in terms of borrowing. There are different options out there depending on where you’re going to be based. You can go through the bond registration process and look at borrowing money that way. What matters most though is ensuring the financial arrangement you put in place works for you and allows you to be profitable with your investment.
There are also many places to find a mortgage online. Consider applying at LoanDepot
Learn from Others
There are many people out there who have plenty more experience than you when it comes to real estate and being a landlord. That’s why it’s a good idea to make some contacts and learn from other people who have that experience. They can tell you about the rookie mistakes that they made and you can learn from the whole process that they went through. It might help you avoid some of those mistakes yourself.
Greg is a Chartered Financial Analyst (CFA) with 22+ years experience in Financial Services. He has held numerous FINRA Securities licenses (series 7, 63, 65, and 66), and is an expert on Investment Products and Financial Planning. Greg has 22+ years experience as a real estate investor and degrees in Psychology and Philosophy.
Greg has been quoted/interviewed in Yahoo Money, Yahoo Finance, USA Today, Authority Magazine, Realtor.com, Business Insider, and others.
Greg is an avid runner, and the father to identical twin girls and their awesome brother. His love of budgeting and his kids led him to join The Great Resignation in 2021.
Disclaimer: Any Financial Tips on ChaChingQueen are general and informational. Speak with a professional about your specific situation.