Real Estate Investor: Things To Consider Before Investing
The first step to become a true estate investor, Is to have some business cards printed… or order five hundred thief signs… or produce the world’s slickest trying website? No. These can return later. There’s one thing way more necessary you need to do 1st.
So what’s it? Location is the first thing that matters when planning to invest in realestate. If you decide on the wrong location then the most effective business cards within the world, or the most effective selling won’t matter as a result of you not getting any deals.
For example, what if you decide to invest in a geographic region within the middle of nowhere with no homes. How do you intend to get any deals nor sales there? Or what if you decide to invest in a city that has all lodging buildings and virtually no single family homes? Or what if you decide to invest in an area with Million dollar homes and your goal is to lease choice houses to the common people who make less then $30,000 a year?
So how then can one select a district or location which is able to provide you with the very best probability of success?
1. Set Your Goals
After doing your homework, you will have a range of the initial investment you can expect to make in getting started. It’s possible to get started with just $1,000 (or even less in some circumstances). But you should also have a goal and know yourself.
How much risk do you want? How much work do you want to put in?
Write down your goal. Next, reverse-engineer what you need to do to get to that point – what is the initial investment amount required to get started?
When you invest in real estate, your goal is to put money to work today and make it grow so you have more money in the future. You have to make enough profit, or “return”, to cover the risk you take, taxes you pay, and the costs of owning the real estate investment such as utilities and insurance.
2. Get The Cash Ready
At some point, you are going to come to the realization that you have to put away your disposable income so that you can fund your real estate investing dreams. You can do so even if you earn a meager salary, or even if you are a starving university student. You can do this, and the important thing is to begin with the end goal in mind.
You can raise funds quickly by working on your side hustle or following your new budget.
3. Job & Economics
Real estate investments only work if the customers who live in them have good jobs. If you own an investment in a factory town and the factory moves, your investment will suffer dramatically. Why? Because rents go down, vacancies go up, and you lose your ability to sell for top dollar.
So, it makes sense to study the job market of your location first. Here are a few things you want to consider for a strong job market:
- The number of jobs in your overall market:. Is this number increasing? Decreasing?
- The median salary for workers: Increasing? Decreasing?
- Types of jobs: Professionals? High-tech? High-paid technicians? Low-paid laborers?
- Diversified jobs: 1-2 major industries (like a military base, one big factory, etc)? Or a stable variety of industries and job sources?
No location is perfect. But ideally, you’ll see a well-diversified source of jobs, a solid mix of worker types, a rising median salary, and a low unemployment rate. It would also be nice to read in the news about local government efforts (state, county, and city) to attract jobs.
4. Population Growth
Closely related to the jobs and economics of a region is the population growth (or decline). People tend to move towards regions with better job prospects. But there are also many other criteria like weather, the price of housing, natural attractions (mountains, lakes, parks), and local politics that attract people to a location.
For real estate investing, you like to see a region with an increasing population because this will tend to increase the demand for housing. And remember – a higher demand + limited supply leads to higher rents and higher values. Those trends are one of the ways you make money in real estate.
Ever heard of a P/E ratio (price to earning) in stock investing? The price/rent ratio is very similar. And it’s a simple way to begin financially evaluating an area for its overall economic efficiency (aka potential profitability).
To calculate the price/rent ratio, you simply take the median price divided by the median yearlyrent.
The higher the price to rent ratio, the worse the market will be for real estate investing (rentals in particular).
The price/rent metric is important, but it must be balanced with the others. A location with a low price/rent ratio may be low for a reason (a bad one!). You have to do your complete homework before getting too excited.
People everywhere want a safe place to live with minimal crime. Your tenants and buyers are no different.
And as a landlord, crime can cost you money in terms of stolen A/C equipment, vandalizing, and more. Local crime is a difficult and slow trend to reverse, so you’re better off avoiding the worst areas no matter what the financials look like on paper.
In urban areas, proximity to public transit like buses, motor-bikes, trains, and subways is an important factor for housing. If your potential tenants or buyers will use public transit, you may want to focus first on locations served by the local transit routes.
For families with children, public/private school districts are a critical factor in a good location. Like crime and some of the other criteria, a good place to start research is online.
But also like the other criteria, online ratings aren’t everything. Talk to local real estate agents who represent buyers or renters. They will be able to tell you which school districts are the most popular among local residents.
And be careful of placing too much emphasis on school districts alone. District boundaries do change, and in some locations, there are no boundaries for school attendance. Get to know your own local situation.
Thank you for reading.