Real estate investment is a great way to bring in some extra money, but it has some serious pitfalls. Knowing the potential pitfalls is important no matter what level of experience you have in real estate. Use the following tips to make successful investments.
Protect your growing real estate business by establishing a LLC or other business entity. This protects you and your future investments. As an added bonus, you should be able to get certain tax benefits because of your business transactions.
Careful not to overextend in terms of buying property. Real estate investing is very exciting, and sometimes it can get the better of you. You may bite off more than you can fiscally chew. Know your numbers and your budgets and stick with them. Even if it seems like an easy flip, don’t go past your budget!
Two guidelines must be considered prior to investing in commercial properties. First, consider the value of the property. Second, don’t overpay for the business. Look at the property and what you can expect in terms of rental income. Each of these numbers needs to be right in order to go ahead with the deal.
If you are already a homeowner or have experience as one, consider starting your real estate investment efforts with residential properties. This arena is already something you know about, and you can start good investment habits. Once you are comfortably making safe money here you can move on to the slightly different world of commercial real estate investment.
Have multiple exit strategies for a property. A lot of things can affect the value of real estate, so you’re best having a short term, mid-term, and long term strategy in place. That way you can take action based off of how the market is faring. Having no short term solution can cost you a ton of money if things go awry quickly.
Screen all your tenants without fail. Tenants you can’t trust to respect you or the property often damage the place and are late on rent. Ask potential tenants for references, and run complete credit and background checks. Taking these steps will help you pick out good tenants.
Remember, you should only invest money that you could lose without causing seriously financial pain to your family. This means that going into debt to invest or using equity from your family’s current home is not the right solution. Find other sources of income to protect yourself from the worst possible situations.
Be careful not to lose focus during a bidding war. Bidding wars get people emotionally charged up. That can lead to bad mistakes like paying too much for a home or bidding against yourself. Remember, the numbers never lie. Stick to your initial numbers and bow out when the price goes over them.
Take extra precaution when you read about offers of cheap land deals in another state. The quality of the land may not be as good as you may think. Do not just take someone’s word for it. If you are truly serious about investing in it, you will have to take a trip out to see the land for yourself.
Don’t buy a fixer. Don’t let the low cost fool you; you’ll probably wind up spending a ton just to fix it. Seek out properties that can be rented out quickly with just minor improvements. The best thing to do would be to find a property to rent that has good renters already.
Don’t neglect that tax benefits of real estate investment. Set up your real estate investments in appropriate LLC or S-corp legal entities. Do so very early in getting involved in real estate investing. You do this early to maximize your long-term benefits and because the longer you wait the more complicated it gets to do so.
Bring a contractor with you when you check out a potential investment property. A contractor can give you an idea of any necessary repairs, as well as the cost to do those repairs. This can help you to decide on what kind of offer to make, should you decide to buy.
Diversification is a great key to investment success. If you are only putting your money in one place, you will only gain from one. Spread your money through different classes of investments and you can see multiple options. This will relieve some of the pressure if any specific area sees a decline.
You need to redefine your thinking when you invest. Disciplined investing involves sticking to a plan that is based on the science behind investing. Once you adopt that plan, you need to stay with it. For many, this is a hard way to think. You cannot foresee market conditions. Stick to your research and choose your next move wisely.
Once you start in real estate investing, you’ll quickly realize the are things you must look out for. If you know the pitfalls, you’ll be better equipped to deal with them. These tips will increase your odds at being successful.