It is definitely hard to get the hack of how to invest in real estate. There are many things to consider before investing in real estate. For example, you need to plan the financing for your potential investment property. Additionally, you might wonder what kind of property to add to your real estate investment portfolio, or as a new real estate investor, what should your first investment be.
However, when it comes to real estate investing for beginners, there is one specific question that stands out: “Where to invest in real estate?” Almost all new real estate investors struggle in finding the best places to buy a property. However, that should not concern you as many experienced real estate investors face the same challenge. The main difference is that the most successful real estate investors know what steps to take in order to find the best places to buy a property. Do you also want to know where to invest in real estate? Keep on reading to learn how to choose the best places to buy a rental property!
#1 Real Estate Investing for Beginners: The Location
The location is a key component on the road of making money in real estate. As you can imagine, in order to find the best real estate investment, you should match the location to your business plan. It is usually the case that new real estate investors get lost in the market of properties and do not know where to search. Our advice to a beginner real estate investor is to have thought about your business approach in detail. You should have created a budget plan and should have established the property price of your potential investment. Use this as a guideline. Start checking for properties, which fit in your financial scheme.
Remember that the ultimate way of making money in real estate is having a positively geared property. This means that the property generates more income than its expenses. Therefore, the hot market destinations are not always the best places to buy a property, as they are associated with high property costs.
#2 Real Estate Investing for Beginners: Real Estate Market Analysis
When talking about real estate investing for beginners, it is necessary to mention how important conducting research actually is. The most successful real estate investors in the field will certainly agree that real estate market analysis is among the very first steps you need to take when searching for the best places to buy a rental property. Real estate market analysis, also known as comparative market analysis, allows the beginner real estate investor to explore the market in detail. This analysis provides information regarding the current state of the market, the supply and demand relationship etc. Additionally, through comparative market analysis, you can explore the market value of your future property. This way you will not overpay for its price and you might be able to negotiate with the seller. Moreover, through comparative market analysis, you can establish how much to charge for rent. This is extremely helpful for new real estate investors who might feel overwhelmed when making this decision.
#3 Real Estate Investing for Beginners: Investment Property Analysis
Investment property analysis is as equally important in real estate investing for beginners. This type of analysis deals more with the property itself. It is typically used as an indication of whether or not buying the specific property will actually lead to making money in real estate. This is simply done through the computation of various real estate metrics. Some of the important variables to consider when searching for the best places to buy a rental property are:
Return on Investment
Return on investment is a basic metric not only in real estate investing for beginners, but investing in real estate in general. When learning how to invest in real estate, you need to learn more about ROI. Basically, return on investment shows the return as a percentage of the investment. Beginner real estate investors can use this as a guideline.
Another metric a new real estate investor has to use in order to become an experienced real estate investor is the cap rate. Cap rate represents the rate of return of a property on the basis of the expected income. Some of the most successful real estate investors consider this to be a key variable when investing in real estate.
Cash on Cash Return
Cash on cash return calculates the cash income earned over the total cash investment of the property. Many experienced real estate investors consider that a cash on cash return of 8%-12% is an indication of a potentially successful investment.
Potential Rental Income
Where to invest in real estate? Make your decision based on the potential rental income you will get. By knowing the potential rental income, a beginner real estate investor would be able to quickly fill in his/her budget scheme and decide if the specific property classifies as the best real estate investment in the case.
If you are curious to know how to conduct this kind of analysis, please visit “How To Do Investment Property Analysis.”
#4 Real Estate Investing for Beginners: The Optimal Rental Strategy
Every experienced real estate investor will tell you that there are different suitable locations for Airbnb rentals and traditional rentals. Airbnb rentals, for instance, are prosperous in tourist cities or business-oriented towns. Airbnb rentals should be situated in a neighborhood connected to public transportation and close to the main city points. Traditional rentals are the optimal rental strategy for university towns or industrial places- areas which attract tenants for long-term accommodation.
Besides the location, there are different property types which are suitable for either traditional rentals or Airbnb properties. That is why it is important to search for the best real estate investment based on your investment strategy. Another possibility is buying a desired property, but establishing the optimal rental strategy for the investment.
#5 Real Estate Investing for Beginners: Real Estate Investment Tools
When it comes to real estate investing for beginners, it is a must to mention some of the tools which help in understanding how to invest in real estate with ease. These tools are not only suitable for a new real estate investor, but many experienced real estate investors rely on them as well.
Mashvisor’s heatmap is the perfect tool for beginner real estate investors. This is due to the fact that the tool displays a graphic map with numbers used as an easy indication of finding the best properties. The numbers might reveal information about the property/ neighborhood/ city performance. Additionally, Mashvisor’s heatmap analysis provides the data based on a color scheme. The numbers in green show the best performance, in orange- the average one, and in red- the numbers below the medium point. This way, you can quickly assess the situation and make a decision as an experienced real estate investor. If you want to explore this topic further, make sure to read “Finding Income Properties Using a Heatmap.”
Mashvisor’s Investment Property Calculator
Another great tool for beginner real estate investors is the rental property calculator. Mashvisor’s rental property calculator quickly and accurately computes all the previously mentioned real estate metrics. Further, the tool gives detailed information about the chosen property and its neighborhood. Last but not least, the tool indicates the rental strategy optimal for the specific investment. To learn more about this tool, do not forget to check out “Investment Property Calculator For Analyzing Real Estate Investments.”
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.