Getting started in real estate investment can be a challenging endeavor that requires patience, planning, and perseverance. It can also, however, offer great returns and help investors to significantly grow their personal wealth. To help guide your investment strategy and realize your investment goals, our team at Icon Valley has compiled below our top five tips.
1. Define your investment goals
Before taking your first steps in real estate investment, summarising the reasons why you want to invest in real estate and defining your investment goals is paramount to making sure your strategy is formed and built around you. To properly map out your investment goals, first, you need to consider your current financial situation. For example, how much money are you willing to invest in real estate? How much money do you currently need to cover your monthly bills and expenses? What are your current credit rating and history? Do you have any current or future financial obligations such as medical care or children’s tuition fees? You should also be considering at what age you would like to retire and how much time realistically you would have to make an investment.
2. Understand your current purchasing position
In real estate investment, as with all types of investment, evaluating and understanding your current purchasing position and your potential to obtain additional financing is key to defining and quantifying your overall investment strategy. Will you be using liquid cash to fund any property down payments? Will you be obtaining a loan to fund in part your overall investment strategy? Beginners looking to invest in real estate for the first time may find that they qualify for more financing support than they previously anticipated. Understanding your ability to access finance is key to assessing what types of properties you would be able to purchase.
In addition, the ability to leverage, that is using borrowed money to buy a property, can significantly contribute to your ROI as you will be able to use the regular cash flows generated from tenants’ rental payment to pay off the property’s loan. With the additional cash freed up from reduced down payments on the property, investors could then look at other further real estate investment opportunities.
3. Define your purchasing strategy early on
Though your purchasing position will greatly inform your investment limits and the types of properties you could potentially target, setting clear goals and objectives is key to reducing the amount of effort and time spent locating and identifying the most suitable and most lucrative investment opportunities. Choosing which purchasing strategy is right for you depends fundamentally on your motivations and reasons for investing in the first place. For example, is your priority to generate healthy cash flows on a regular basis, or are you looking to acquire multiple properties at once?
One common strategy used by beginner investors is to purchase the first property with cash and using the accrued monthly cash flows to save towards a second investment property. This strategy would allow you to purchase several properties incrementally whilst still enjoying healthy regular cash flows. Alternatively, you could decide to use your investment cash to purchase several properties at once with a specified percentage of each property being taken as a down payment. Using this strategy, investors could use the cash flows and revenues from all properties to pay off one property’s mortgage at a time.
4. Which properties match your investment goals
Choosing which properties to invest in shouldn’t be done on a whim. After all, having already defined your investment goals and purchasing strategy, you should have a good idea about which properties will give you the returns you are looking for.
For many beginners or first-time real estate investors, purchasing single-family homes is often considered a safer option, providing the property is in a high demand area with regular cash flows expected. In addition, once mortgages and down payments have been cleared, investors have the option to keep the investment property in the family for children or future generations rather than sell on the market at a later date. On the other hand, if your priority is to generate healthy and regular cash flows, purchasing a multi-family home or student accommodation, for example, could be a sound decision. If you have more investment cash at your disposal, purchasing a luxury apartment could generate even higher cash flows. However, purchasing properties with more regular tenant rotation inevitably will require more property maintenance as well as more tenant management, whether directly or via a real estate agent. The extent of your involvement and time you can commit to the property’s management therefore should also be considered.
5. Don’t stop learning
For any investor or in fact, any entrepreneur wishing to increase their invested capital, understanding the market you are in is crucial. Regardless of whether you are likely to be in real estate investment for the long or short-term, make sure you gain an in-depth knowledge of the market and keep up to date with any and all changes in legislation, mortgage rates, government incentive schemes, and consumer habits. Failure to do so may not only result in your missing out on key opportunities, but also could leave you at risk should you fail to adapt and adhere to legal and regulatory changes. If tax law is not your area of expertise, consider brushing up your knowledge or investing in the services of a qualified accountant who can guide and educate you about your responsibilities and the impact of tax on your bottom line. After all, the majority, if not a significant portion, of any real estate investor’s annual outgoings is likely to come from taxation. Staying abreast of the latest developments in the real estate market is only going to stand you in good stead.