Investing in Real Estate: For Beginners
At this current time, we are enamored with shows about Fixing and Flipping homes or ways to become the next great Real Estate Investor. This has resulted in many people jumping into real estate investing before they are actually educated on the process and what it entails. Consequently, novice investors end up losing money or finding themselves entrenched with debt due to miscalculating the price of their repairs or their exit strategy.
Real Estate is a great way to build wealth in America and around the world. That being said, it is important that like any other investment that you pursue, you do your research and due diligence prior to purchasing an investment property. There are several factors that go into determining whether or not you should invest. These include: Financing, determining a renovation budget, evaluating a property, and understanding the conditions you are facing before going under contract or even submitting an offer.
One of the first steps in this process is to establish your vehicle to finance this investment. Many investors choose to use their own cash or funds to purchase and renovate their properties. In the land where “cash is king”, some would choose this option because it is quick and easy. While it is a convenient option, it could also be a deterrent in pursuing multiple projects at once. Some of the most savvy investors choose to use “OPP”,(not to be mistaken for the classic hit song from “Naughty by Nature” of the 1990’s) short for Other People’s Proof of funds. In this case, investors seek a private financial institution to finance both the deal and the renovation of said deal. The investor is responsible for the down payment and closing costs, and everything is typically negotiable with the lender. This method would allow you to pursue multiple projects at once without putting out too much cash. That is - if you have competent manpower to complete the renovations of multiple projects.
Interviewing multiple contractors will be one of the most important steps that you can take towards becoming a savvy investor. We all have those handy friends that consider themselves some version of MacGyver and some of them are definitely good at what they do, but if you want to be taken seriously in this game, we recommend a licensed contractor that has the resources to complete a project in a reasonable time. Like the old saying goes, “time is money.” This takes time to figure out, so you will likely have to experience a few investment projects before being able to make the right decisions during the process. You will eventually be able to assist in evaluating the cost of repairs, and how to establish a budget to keep you on track.
All of this will help you get closer towards your goals of investing in Real Estate.