5 Tips for Owning Real Estate as a Business Investor
Saturday, June 27, 2020, 6:00 AM | Leave Comment
Real estate is one of the most common ways that people become rich in the United States.
That’s because the real estate market continues to grow across all parts of the country.
Also, you can use leverage to really multiply your earnings.
However, there are some tips you should follow before you take a big dive into the real estate world.
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Diversify Your Investment
You don’t want to have all of your real estate investment in one property. Of course, when you are starting out, you may have no choice but to have one property. However, as your real estate portfolio grows, you will want to make sure that you are well diversified. That’s because you are going to have vacancies and if you put all of your real estate into one big house and the tenant leaves, then your income goes all the way to zero. Plus, you still have to pay the mortgage and other costs associated with the property.
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Don’t Over Leverage
Many people are attracted to real estate because you can leverage your investment. In fact, you can leverage yourself up to 400% or 500% of your capital. You can see how this can make you rich in a short time. With $100,000 in cash, you can buy up to $500,000 in real estate. With a 7% cap rate, you can make $35,000 a year from a $100,000 investment each year. That’s not bad! However, if there is a downtown in the market, you still have to pay the mortgage on the $500,000 of real estate that you have purchased. Therefore, you will want to make sure that you are using leverage that you can handle. You should start off slowly. Consider just using two times leverage and saving up your money for your first five years. When you have enough cash in the bank, then you can try going up to three-time leverage and so on.
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Take Care of Small Maintenance Issues Before They Become Big Headaches
One of the biggest problems that real estate investors run into is maintenance costs. That’s because many real estate investors try to save money by not handling all of their maintenance issues. This can cost you big time in the future. For instance, let’s say that you have a large branch hanging over the roof of your rental house. You get a $2,000 estimate to trim the tree and decide that it’s not worth it. Three months later, there is a big storm and the branch comes down on the roof. Now, you have to pay to remove the branch, fix the roof, and relocate your tenants. Now, you could be looking at a $10,000 headache. When you discover any sort of maintenance problem, take care of it right away.
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Join A Local Real Estate Investing Group
Every city has a real estate investment group. These groups are really valuable when it comes to furthering your education on the world of real estate investing. Chances are, you will meet people who have more experience than you. They can help you get to the next level in real estate investing. You might also be able to get a great deal from someone in the group who is looking to unload on a property. It is recommended that you go to the group’s monthly meetings to catch up on what’s new.
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Know Your Market
One of the most important things you must do is know your market. You will want to know where the best properties are and which areas to avoid. You can use a virtual real estate agent that can provide you insights on the best property opportunities in your area. Start out with your neighborhood and slowly work your way out. The more that you know about an area, the best positioned that you will be to find the right properties for your portfolio.
Growing Your Real Estate Investing Portfolio
The world of real estate provides a great opportunity to grow your wealth. Be sure to diversify your investment, avoid over-leveraging, handle all small maintenance issues, join a local real estate group, and know your market. The more steps you follow, the best positioned you will be to grow your real estate portfolio.
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