Real Estate Investing: How to Diversify Your Portfolio
Many investors are turning to the rebounding real estate market for a secure place for their money. Fixed-income yields remain historically low and equities are surging. Interest rates remain low, as are home prices. The opportunities abound. If you know what you are doing. Many home investments can provide positive returns, while others can be catastrophic failures. These tips can help first-time investors take advantage of what might be the opportunity of a lifetime.
Partner with experience. Whether you choose to pursue a portfolio of investment opportunities, or become a first time home buyer, we highly encourage seeking professional assistance. Interview agents who have an intimate understanding of the market and who will be able help you strike a balance that fits your investment requirements. Find a negotiator who has a solid understanding of the neighborhoods you are searching, or who will help guide you to those that meet your criteria.
Establish a plan. Not all investment properties will provide the same outcome; it’s important to determine what fits your strategy. Ask yourself what type of investor you want to be. Do you want to buy a single family home or a multifamily complex? Are you going to specialize in fix and flips or rentals? Do you have a strategy for funding the property and the rehab project? What is your exit strategy? Are you going to hold or sell and do you know the costs involved with both options?
Do your research: Research is the key ingredient before pursuing any task, especially investing in property. If you are looking to buy a fix and flip, you need to know what the inventory is like. Find out if there are more rentals than sales in the area. Does the price point match your budget? What will the return on investment look like?
Financing: Before jumping in and making offers on properties, you must know how you are going to pay for them and what your limitations are. What type of financing will you be bringing to the table? There are many different types of financing for investors (conventional loans, hard money loans, private, owner carry, etc.). There was a time when investors could find a home first, then find the funding. This is poor practice in today’s market and will put you at the bottom of the pile in a hurry. When there are more buyers than inventory, having your financing in line is critical.
Price point: One of the biggest mistakes new investors will make is overpaying for a property. You must know what the total cost of your investment will be after repairs, and what you can sell the property for (part of the exit strategy) before you make an offer. Keep in mind that whatever you estimate the cost of repairs to be, add fifteen to twenty percent, and do not forget to calculate the holding costs of the property after the fix-up.
Hire professionals. There are only a few things worse than the new investor who wants to do all of the work themselves. Do yourself a favor and hire professionals who know what they are doing, especially when taking on a full remodel. Many new investors will get in over their heads when they try to tackle the work themselves. Not only do they fall behind on their timeline, they generally end up over budget, and the work is usually sub-par. Do it right the first time and save yourself the headache and risk of loss.
Buying an investment property is an entirely different experience than buying a primary residence. Whether you are a first timer or a seasoned real estate investor, we can help you make shrewd decisions that will pay off. To learn more about how The Steller Group approaches the business of investing, give us call: (303) 539-5228.