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Several individuals, whether starting off as millionaires or not, have become successful when investing in real estate. While real estate has the potential to be a very lucrative investment, it’s still a risky investment that can cause you to lose a lot of money— if you don’t know what you’re getting yourself into. Here are four tips on how to be successful in real estate investing.
#1: Choose Your Location Wisely
Anyone with a workable knowledge of real estate will tell you that location is the most important factor. This is true because real estate is all about location, and properties in bad locations do not sell or attract tenants. When looking to invest in residential real estate, look for these factors in a good neighborhood:
- Access to medical care
- Access to recreation, entertainment, and leisure activities
- Access to public transportation
- Family-friendly with good schools and low crime
One other sign of a good location is job and population growth. This is also a good sign if you want to invest in commercial properties (e.g., shopping centers, office buildings, hotels, etc.). When it comes to industrial properties, such as warehouses and factories, your prime locations are going to be located near interstate highways.
#2: Pay Attention to the Market
Another important factor in real estate is a thorough knowledge of the real estate market itself. Once you research the market you’re looking to buy in, you’ll have a better understanding of property prices. This research will help you to know how much you can charge your tenants in rent, and also which renovations and remodels will increase the property value.
Also, avoid “hot markets”, no matter how tempting they may be. This is because even though properties appreciate faster in hot markets, it’s more probable that you’ll buy at the top of the market and risk losing money, rather than making it. Stick to this rule especially if it’s your first time investing in real estate, and once you’re more comfortable and see success you can start looking into other markets— possibly markets in foreign countries!
#3: Be Aware of All Rules Regarding Rentals
A popular type of real estate investment is that of vacation rentals, also known as short-term rentals. Unfortunately, not all locations allow for short-term rentals (six months or less), and some places have very strict rules regarding short-term rentals. What’s even more unfortunate is that some of the most visited places in the U.S. (like California and New York) have the strictest rules regarding vacation rentals. So if you’re looking to invest in a vacation rental in California or New York, make sure you research which cities and towns allow short-term rentals.
With that being said, it’s also important to be aware of all rules regarding long-term rentals. Most long-term rental regulations in the U.S. are pretty standard: the tenant signs a lease that lasts anywhere from six months to fifteen months, with some variations.
#4: Don’t Put Too Much Money Into One Property
Even if you receive financing, you don’t want to put the majority of your money into a single property— especially if you plan on renovating the property. It probably goes without saying, but you don’t want to look into a property that’s too expensive because you may not see a return on your investment. The average cost of a residential property in the U.S. is somewhere around $375,000, so you don’t want to go too much more over that number.
However, this is the national average. Since the cost of living varies greatly across the U.S., you’ll see higher averages in states like Hawaii, California, and New York, but much lower averages in states like Oklahoma, Arkansas, and Mississippi. Also, keep in mind that you don’t want your home improvement projects to end up costing you more than what the property’s worth.
It will also be helpful to talk to a seasoned real estate investor in your area. He or she can give you even more insight about real estate investment and more information on your particular market. It’s never a good idea to rush into any type of investment when you don’t have all of the information.
Remember that becoming successful from real estate investing or any other type of investment will take time. Not everyone sees immediate success, and there may also be some ups and downs. Just follow these four tips, know how to effectively market your property, and be a respectful and responsible property owner.