This week we are going to explain some of our key rules for investing in real estate and having the highest return on investment possible! Let’s get down to business
If a property is purchased for $50K over its actual value, you have 50,000 steps to take before reaching the break-even point. Who wants to deal with that? Nobody, which is why it’s important to know the home market value before you invest. A second key component to smart investing is knowing the terms and conditions of your finance options. If you need to procure financing or use hard money, it’s important to understand all the details of accepting the money upfront.
KNOW THE VALUE AND COMPARABLES
Before purchasing a property, make sure you understand its value. If you read the previous sentence and you’re breaking a sweat, chances are you’re feeling a tad uncomfortable with the evaluation of your investment property. If it were easy, there would be far fewer instances of buyers overpaying for Real Estate. Believe me, it happens all the time. It is easy to misjudge values when pulling comparables for a property — it’s not a simple process! Neighborhoods, zoning, traffic issues, parking, etc. can all influence the resell value of a property. What if a new garbage dump is being built a half a mile away, all of the neighbors’ houses have 2 more bathrooms than yours, or your property sits on a corner lot? All of these things affect the home market value – some positively and some negatively. It takes time, experience, and practice to develop the skill set to accurately evaluate a property. If you feel comfortable with the process, great! If not, don’t despair; working with a dependable agent that understands real estate values and variances in today’s market will ensure you make a good investment with the highest possible return. If possible, take it one step further and work with an agent that specializes in investors — there is a vast difference between purchasing a home to raise a family in and a home you plan on flipping. You always want to take advantage of using professional sales agents that have the knowledge and experience of working with investors day in and day out.
UNDERSTAND ALL YOUR CARRYING COSTS
We’ve already covered property repairs/renovations and our contractor. Now let’s talk about our other big expense: Cash. Coin. Greenbacks. Regardless of what you want to call it, “cash” or short-term money comes with its own set of costs. If you’re purchasing the property outright with your own money, then this is strictly a mental exercise. However, if you’re borrowing hard money, be sure you’re well-versed and comfortable with the following: What are the fees involved? How long is the term of the note? Is there a cost for an extension? If the pipes burst, flooding the property and prohibiting a sale for an additional 4 months, what will you owe then? These are all good questions to ask before you purchase your property. When establishing a budget, it is good to always add a month or two of interest expenses to be safe. It is not entirely uncommon for a project to stretch on for unseen reasons.
And here’s a bonus hint: Does your lender give rebates for paying off the loan early? If not, they should! There are many lenders out there that will. Also, it is a good idea to refinance your property immediately into a conforming loan to save on points, interest, and MONEY!
LOOKING TO INVEST IN REAL ESTATE?
Contact Heaton-Dainard today, we have a team of real estate agents that work exclusively with investors and can do a free Comparative Market Analysis (CMA) for any property that you are considering.
Also, consider our free investor class, where our experts walk you through a comprehensive overview of investing and real deals that we have advised on in the past.