There are many options available when it comes to becoming a real estate investor. Residential property investments are considered one of the most profitable investments in the real estate business because of their many advantages and the numerous ways that you can make money using this investment strategy.
Even so, there are many real estate investors who have tried investing in residential property and failed. So, what should you take into consideration to be successful with residential property? To make money with these investments, you need to find the best residential real estate to invest in. With the right tools, sufficient knowledge, and experience, you can make your investments successful. Here are some of the things you need to take into consideration to avoid losing money.
1. Set Your Financial Goals
One important area of how to succeed in real estate with residential property investments is setting SMART financial goals. The goals need to be Specific, Measurable, Attainable, Relevant and Time-based. For instance, what amount of income do you desire to earn after deduction of taxes and costs, or how long will it take for you to see a return on investment?
2. Determine Your Budget
Depending on the financial goals you have set, consider all acquisition and ongoing costs accompanying the purchase of your residential property investment and then draw up a budget for it. Such costs may include building inspections costs, legal fees, stamp duty, mortgage establishment expenses, property management, repair, and maintenance.
3. Select the Right Location
The location you choose for your residential property investments is critical to your success. Even the best residential real estate with good numbers will fail if it is in a bad location. This is due to a number of reasons. First, the location of a property is constant. Investors can make changes to their residential property investments but they can’t move them or make changes to the area around the residential properties to make it more suitable.
Location is also crucial in determining the amount of rental income you can make with your residential property investments and the amount of running costs to be incurred. This will, in turn, determine whether the properties will be negative cash flow investments or positive cash flow investments. Moreover, the land on which residential property investments are built will appreciate depending on various factors such as economic growth and population.
So, what makes for a good location? The best locations for residential property investments are typically in neighborhoods that have a growing job market, are developing, and are near amenities like schools, hospitals, public transportation, shops, restaurants, recreational facilities, etc. Neighborhoods with these features usually have high demand and positive return on investment!
4. Determine the Right Property Type
There are many types of residential property investments out there from which you can choose from such as condos, townhomes, multi-family homes, single-family homes, etc. Residential real estate investors need to determine the best type of investment for them depending on their goals, budget, investment strategy, and other factors.
For instance, if you want to purchase residential property investments with the aim of having them rented out in the short term on Airbnb, then it would be better to go for a townhome or a vacation home instead of investing in an apartment building or a single-family home.
Residential real estate investors who want to expand their investment portfolio should try to diversify their types of property. On the other hand, investors who want to make a quick profit from investments should look for residential properties that are not in good condition and fix-and-flip them.
5. Conduct Investment Property Analysis
Before buying an investment property, a residential property investor will need to use real estate analytics in order to find the most profitable investments. Real estate analytics refers to the estimates and calculated values of expenses, returns, and other metrics that influence the amount of money the residential property investments will generate. They can be either data comps for several different residential properties in an area or calculations on one residential property. For example, the main metrics Mashvisor’s rental property calculator focuses on include cash flow, cap rate, and cash on cash return.
6. Work with a Real Estate Agent
It is highly recommended that you work with an experienced real estate agent if you want to make your residential property investments successful. There is a good chance that you don’t have as much experience and knowledge as a real estate agent unless you are a full-time real estate investor. Therefore, it is prudent to work with experienced real estate professionals who have devoted all their time to studying the property market, analyzing investment properties for sale, and working with both property buyers and sellers.
7. Monitor and Maintain
After acquiring suitable residential property investments and finding tenants, you will need to pay regular visits to the property and ensure that it remains in good condition. You also need to follow up with your tenants and ensure that they pay rent. You should never ignore non-payments or late payments, as these could snowball into bad debt. You can also choose to hire a qualified property manager who can do the work for you by screening and locating suitable tenants, preparing leasing documents, collecting rent, conducting inspections regularly, and arranging for repairs on the residential property as required.
Many real estate investors prefer residential property investments since they are associated with higher returns and lower risks. However, finding profitable residential properties requires more than just looking for properties that are on sale. Above are some of the ways of ensuring that you don’t fail with your next residential property investments. It is essential that you do your homework and use real estate analytics to find residential properties with a positive cash flow.