Investing in real estate can seem like an intimidating thing to do, especially if you’ve never done it before. But with the right preparation and knowledge, you can feel confident that your decision to invest in real estate will help you meet your financial goals in the future. To get started with your research, read these five things that every investor should understand before they begin investing in real estate.
The first step to investing in real estate is ensuring you can afford it. No matter what anyone tells you, it’s not smart to invest money you don’t have and expect to pay for it later. If a real estate deal sounds too good to be true, it probably is!
When you own a property, you can deduct mortgage interest from your income taxes—this reduces your taxable income and translates to tax savings. There are limits to how much you can claim in deductions for these kinds of costs, but in general, real estate is a good place to invest for tax benefits.
Why is it important to diversify your real estate portfolio? If you invest in just one property, you have all of your eggs in one basket. What if that property is damaged or destroyed by a fire or some other accident? Then what would happen to your investment? Diversification protects against such catastrophes. By holding investments in a variety of areas, you’re less likely to suffer a blowout loss like that.
Timing Is Key
It’s important to understand real estate cycles, and it’s even more important to understand when you should jump in during those cycles. The next few years will be a boom time for real estate investing. Foreclosures are still rising at an alarming rate, so there will be lots of opportunities for bargain-hunting investors willing to put in a little sweat equity. If you want to catch up on missed opportunities or start fresh, now is as good a time as any!
Property Management Issues
The biggest risk to any investment property is a lack of management. Homeowners may try to reduce their operating costs by reducing fees to property managers and ignoring proper maintenance, which can have serious consequences in the future.
If you’re considering real estate as an investment, make sure you take into account how much time and money you’ll need to devote to property management so that your return on investment doesn’t go up in smoke.