Expert Tips For Your First Investment Property
Written by Shawn Patterson
October 28, 2020
Venturing into real estate investment is an exciting opportunity which can generate significant profit for investors when executed correctly. As with all investments, however, there are certain financial risks that can be costly if you do not know what you are getting into ahead of time. Successful real estate investment requires a strong knowledge base, research, and careful consideration before diving into it. Below are some tips expert investors recommend when investing for the first time in real estate.
Do Your Homework
One of the best tips long time investors can offer is to do your homework ahead of time and “know what you don’t know”. Understanding that all geographical markets are unique and taking the time to learn the specifics of the area you wish to invest in ahead of time can avoid many headaches down the road. It is important to be thorough during the underwriting process and to make sure you are able to acquire a property on the best possible terms. Experts recommend that you go over all legal documents with a fine-tooth comb and have someone you can trust to carefully draft any agreed upon terms. Unless you are already an experienced real estate professional, having a strong mentor relationship in place to discuss your investment and business plan can make the difference between whether or not your first-time investment is successful or not.
Choose A Location You Understand Well
When investors are first starting out, experts recommend investing in an area you know well and preferably one that is within an hour’s drive of your home. Attractive investments on paper can often turn into nightmares when they fall outside of the scope of your general understanding of where the property is located. By investing close to home, you can more easily get to know an area and be responsive on short notice when your immediate attention is required on site. Having the ability to physically step foot into a property and walk the surrounding neighborhood can offer many valuable insights that may get missed if you attempt to invest in a property that is in a location you know little about or is not within a reasonable distance from your primary residence.
Go Beyond Your Feelings
There are many different metrics that often get overlooked by first time investors when they are starting out in real estate. Understanding and analyzing data to drive your decision making is much more effective than simply acting on impulse based on how you feel about a specific investment property. Job growth, population growth over the last five years, median household income and crime rates are just a few often overlooked indicators of whether or not a property will make for a sound investment. Taking a step back and objectively looking at all of the data available in the real estate market you wish to start investing in is not only a wise approach that will help set your mind at ease on making the right decision but can also help you to find investment properties you might have otherwise overlooked when you are first getting started with investing in a property.
Don’t Over Commit Financially
Experts stress the importance of understanding your financial limitations and avoiding scenarios where you over commit even if an opportunity sounds lucrative. It is important to have alternative means of income when investing and to not place all of your eggs in one basket financially, especially when you are first starting out. While abandoning your day job and becoming a full-time real estate investor may sound appealing, it comes with its own pitfalls. Understanding your individual financial and comfort levels and what investment criteria’s and exit strategies are right for your situation ahead of committing to any investment can make all the difference in your success, especially in real estate. Long time investors recommend you always have sufficient cash reserves post-closing to cover unforeseen vacancies and expenses. Furthermore, they recommend you consider options such as purchasing multi-unit properties vs. single family properties to help avoid incidents like having a tenant who suddenly stops paying rent or a down turn in the market. Having a clear understanding of your financial standing ahead of time will make any issues that arise down the road much less painful for all parties involved.
Regardless of your background, experts agree that before investing in your first property, it is important to do your homework, choose a smart location, analyze all of the available data at your disposal, and perhaps most importantly, to not over commit financially and strain your ability to make future investment moves when they come along. Understanding the above expert tips regarding first time property investment will hopefully help guide you in the right direction before you sign on the dotted line and secure your first investment property.