You’ve been keeping an eye on the real estate market and binging flip-this-house TV shows because your goal is to buy a second home — a real estate investment. Before taking on a second mortgage, look at the big picture. Is this the right move for you? Real estate investing for beginners can be overwhelming, so ask yourself these questions before you begin.
1. Do You Know the Market?
Taking the time to understand the local market is a necessary step for every beginning real estate investor. In some areas, rental properties might be smarter investments than resales — but you have to know the area. Data like average sales, rental rates and the time it takes to sell or rent properties are needed to make smart investment decisions. Otherwise, you can’t know a good deal when you see one.
2. What’s Your Plan for the Property?
You can invest in real estate in many ways. Some investors purchase, upgrade and resell properties. Others invest for the long term, using rentals to collect regular checks. Your plan — buy and resell, or buy and rent — will help determine your budget, target sale price and return on investment.
3. Can You Afford that Plan?
Assessing the cost of renovations and repairs and comparing them to the rental rates or sale prices in the area is essential. This will help determine whether a property is a good investment. Remember to consider your market. In a competitive market, finding a great deal on a home might be challenging, but resale might be quick and easy. On the other hand, in a depressed market you might be able to make a strong profit, but the sale might take longer.
4. What Are the Tax Implications?
The IRS has regulations on rental costs and taxes on rental income, as well as on the sale of investment properties. Before beginning to invest in real estate, talk to a tax professional about the tax implications. Ask, too, about any expenses you might need to document.
5. Are You Prepared to Invest?
As a beginner in real estate investing, you need to be prepared to pay for purchasing, renovating and insuring an investment property (and potentially covering the monthly costs until it sells or rents). You must also be prepared emotionally. Renovations can run long and over budget. Sales contracts can fall through. Your new renters might call in the middle of the night about a clogged drain. Consider whether you’re ready for these things before you take the plunge.
Protect Your Real Estate Investments
Get the best protection on your second property — or your first. Contact your Farm Bureau agent today and make sure you’re covered.