Investing in real estate is an attractive opportunity that can produce large returns and help you build long-term wealth. If you’re just getting into it, though, there are a few things you’ll need to consider. Real estate investing is a complex field and you cannot just pour money into it and expect instant profit. Here are four things you should know about real estate investment before you buy your first property.
Most of What You’ve Heard About Flipping Is Wrong
Thanks to popular TV shows, house flipping is easily the highest profile form of real estate investment. While flipping is absolutely a good way to make money from real estate, these shows give many first-time investors a completely incorrect view of the actual process. A successful flip rarely involves gutting and renovating a house in order to produce profits in excess of 30 percent. Instead, successful flippers target the repairs that produce the highest return on investment to keep their costs low. Once all is said and done, the profits can still be quite large. However, they’re much more modest than television shows suggest.
You Can Access FHA Financing for One Multi-unit Home
One of the biggest hurdles young real estate investors face is getting financing. If you’re just getting started, though, you can buy your first rental with the same FHA loans used by everyday consumers to finance home purchases at attractive interest rates. To do this, you’ll need to buy a multi-unit property, live in one of the units and rent the others out. FHA rules allow financing for up to four units, meaning you could get three rental units and offset your own cost of living in the process.
Rental Income Isn’t Purely Passive
Owning multiple rental properties is a great way to build your income over time. Many new investors, however, are under the mistaken impression that rental income is purely passive. In truth, maintaining your rentals and dealing with day-to-day business affairs will require a good amount of work on your part. You can make this stream of income more passive by hiring a good property management company to attend to the property, but no real estate investment is ever completely passive.
Be Careful Not to Overuse Debt
Anytime you’re dealing with real estate, debt is going to be a factor. The important thing to keep in mind is that you shouldn’t overuse debt. Financing more than you can possibly cover in the event of unforeseen issues will get you into financial trouble eventually. Keep your debts minimal and use cash as much as possible, since this will reduce your risk and allow you to pay out less in interest.
With these four pieces of essential information, you’ll have a much easier time succeeding in the real estate market. Real estate investment includes a significant learning curve. Once you’ve learned to do it correctly you’ll be amazed at how much income it can produce. Learn the basics and expand your knowledge and you will be more likely to succeed.