Once you’ve completed college and started “adulting,” you’re ready to begin building an income for your future. For some, this means looking toward real estate investment as an option for building wealth. Whether you’re flipping houses or buying a rental property, it’s best to wade in slowly and test the waters.
Seventy-six percent of real estate investors are under 55 years old, and 66 percent live in the South or the West. Real estate is one of those things that can net you a big profit or a big loss, so follow these baby steps for the best chance at success.
1. Buying on a Budget
If you’re like most recent college grads, you may not have a lot of extra cash on hand. Perhaps you’re still paying back student loans, or you just don’t have extra room in your budget. Most banks ask for a 20 percent down payment for an investment property, which may seem out of reach, but you can start small until you get the ball rolling.
A 20 percent down payment on a $100,000 property is far less than a 20 percent down payment on $1,000,000. Another option is to find a rent-to-own property. Live in it yourself for a bit, pay it off and then rent it to others while you move on.
2. Choosing the Right Area
You’ve likely heard the rule of thumb that you should buy the least expensive home in the most expensive neighborhood. This advice is valuable, but you also need to look at the growth in the area overall. Is it an area that is in the midst of a revitalization? If so, buying a small home in an up-and-coming neighborhood may pay off big in the future.
Another key factor to look at is long-term economic growth. What is the job market like in the area, and how does it look in the foreseeable future? If you want your investment to pay off, do the necessary research to ensure you’re making the best purchase possible.
3. Finding the Right Property
Once you’ve decided on the area, you have to find the best property for your investment needs. Since you’re just starting out, it is probably smartest to work with a real estate professional, which helps you narrow your focus more quickly by allowing you to view any property with a MLS listing.
A real estate professional will also understand the best ways to protect you as a buyer. From inspections to getting the buyer to cover closing costs, there are myriad things to consider.
4. Figuring out Rehab Costs
If you’re planning to buy a fixer-upper and increase its value by rehabbing it, there are many important factors. The first step is to figure out what that rehab will really cost you. Take an inventory of what work you need to finish, including the cost of the materials and the labor. Don't forget to include expenses associated with building permits, construction insurance and increased taxes.
5. Staging the House
Once you’ve completed updates, invest in staging the home. If you can’t afford a staging expert, go ahead and study up to do it yourself at first. The more neutral, but homey, you can make a house feel, the more buyers will be able to picture themselves in the home. In a survey, 49 percent of real estate agents reported staging has an impact on how buyers view a listing.
Staging a home may allow you to flip it faster by selling it faster, which means you can move on to your next project and invest in even more real estate. Don’t forget to stage both the inside and outside of the home.
Real Estate Investment
Taking these baby steps allows you to try out real estate investing and see if it’s right for you. It isn’t wise to invest millions in rental property without first owning a single rental unit and learning through the mistakes you’ll inevitably make. As you learn and grow, you’ll become a better investor and be ready to make bigger investments.