Things To Consider Before Making Your First Real Estate Investment

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Things To Consider Before Making Your First Real Estate Investment

Real estate can be an excellent investment, but it’s important to educate yourself about different aspects of real estate investing to avoid making any “rookie mistakes” and mitigate as much risk as possible. There are several factors to consider before making your first investment, and many of those factors depend on the type of real estate investing you plan on doing.


Know Your Market

Whether your intention is to flip a house, purchase a single-family rental, purchase a multifamily property or dive into commercial real estate investing, it is essential to know your market thoroughly. You want to know how property values have changed and how rental rates have changed in your area. You’ll also want to look at what factors have contributed to those pricing changes, either positively or negatively.

You’ll want to have a good idea as to how the value of your investment will change over the next 5, 10, or 15 years. It’s also a good idea to look at what future developments are planned and determine how those developments will affect property values in the market you’re planning to invest in. Remember that a property that looks like a great investment today could potentially lose significant value, while a property that may not look like a great investment today could increase in value exponentially as new developments occur.


Understand Local Zoning and Ordinances

Many municipalities have ordinances regarding rental properties and have different zoning classifications that allow for various property types. Understanding these ordinances will be crucial as you work with your local government on various issues pertaining to your property and your neighborhood.

Many local ordinances require that rental properties be licensed. Licensing requirements typically involve inspections to ensure that the property you’re renting out is up to code and meets certain quality standards. Knowing what these quality standards are will be important as you are evaluating properties, so you can understand what additional costs there may be.

Just because a property is currently being used as a single-family rental, apartments or a specific commercial use, doesn’t mean that it’s conforming to the neighborhoods zoning classification. Zoning can change for various reasons with variances or special use permits being granted to properties not conforming with the new zoning. It’s important to know the zoning so you can determine if there are any specific conditions tied to the special use permit, or what developments you can expect in the neighborhood. If you’re buying an apartment building in an area zoned for industrial use, it’s likely you’ll eventually see a new industrial property pop up next door. Things like this can greatly impact your property’s value.


How You Will Handle Emergencies and Maintenance Calls

When you own a property with tenants, it’s inevitable that you will, at some point, receive an unexpected call about a maintenance emergency or other maintenance requests. When problems arise on the property, it’s important to be able to respond quickly and assure your tenant that the issue will be handled promptly.

If you have a full-time job that makes it difficult to take phone calls during the day, or if you travel a lot for work or for another business, it can be difficult to handle those requests as they come in. While an issue such as a dripping faucet doesn’t require immediate attention, a hole in the roof or a busted pipe needs to be dealt with immediately. If you aren’t able to take these calls at any time yourself, you should find somebody that is.

It’s also helpful to build your team of professionals ahead of time. Know which plumber, electrician, HVAC person, locksmith, handyman, etc. you’ll call when needed. Having a name and number ready when an issue comes up makes the process a lot easier and less stressful.


Determine Your Investment Plan

Whether your goal is to supplement your income, become a billionaire real estate tycoon, or set yourself up for retirement, it’s essential to have a plan in place once you start. What you do with profits, how you finance your property, and other decisions will depend on your long-term goals.

If your goal is to supplement your income, then you can go ahead and spend your profits as they come in. However, if you’re saving for retirement or want to grow your real estate empire, you’ll want to reinvest those profits in order to keep growing.

If you’re going to reinvest you profits, you need to know how you’re going to do that. Whether you keep saving your cashflow until you have enough for a down payment on another property, or want to sell your property as you gain equity to move into a larger investment, have a plan in place ahead of time so that you can keep moving toward your goal.


Rikk LaBere from Property Redevelopers, LLC in Cambridge, MN says that one of the best things you can do to be successful as a real estate investor is to do your homework, be disciplined in the deals you do, and make sure you consider and evaluate all of the potential pitfalls of a deal. Investing strategically and wisely is the best way to successfully grow your real estate empire.

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