An investment is an excellent opportunity to grow your wealth. Letting your money sit in a bank account with a low-interest rate isn’t going to transform your lifestyle any time soon. Plus, an investment isn’t as risky as people seem to believe. If anything, it’s a fantastic way to protect your resources as well as boost them.
However, it’s tough to get the ball rolling when you’re a novice. Yes, choosing real estate is an excellent first step, but then there’s plenty more to consider. From which loan to apply for to which property to bid on, you won’t find it straightforward in the beginning.
Thankfully, there are pieces of advice that make the process less complicated for beginners. Use the following and your first-ever real estate investment should provide you with a high ROI. Nothing is guaranteed, but at least you’ll increase your chances of success!
Overestimate The Costs
The biggest mistake newbie investors tend to make is to underestimate their budgets. Seeing a number that is feasible instantly increases your mindset and makes investing less daunting. However, it also lures you into a false sense of security. Once the real figures start to pop-up, you’ll find yourself in a sticky situation and won’t know whether to pull out or continue.
To avoid this, you should overestimate your budget by including every possible expense. So, aside from mortgage repayments, don’t forget to add repair and maintenance costs as well as money lost from late tenant payments. The latter might not happen, yet it’s wise to plan for the worst outcome so that you have the money to cover the fees.
An industry rule is to take your budget and add 10% on top. Then, you’ll have a buffer for a rainy day.
Choose A Variable Rate Loan
There are two types of mortgages: fixed-rate and variable. The former is often a tempting proposition because nothing changes, which means you can plan for the majority of situations. Regardless of what happens, at least you know the mortgage payments will never increase.
While this offers peace of mind, it doesn’t give you flexibility. And, flexibility is essential when it comes to the best variable home loan rate for you and your portfolio. Why? It’s because you decide when to up payments, lower them, or keep them the same. If, for instance, the investment goes well and you want to use the profits to clear some of your debt, you can by contacting the bank. Fixed-rate mortgages don’t allow you to do this, so you’ll be stuck with the loan for 25 to 30 years.
Currently, interest rates are low and have been for ages, which means a hike won’t hit you out of the blue.
Try A Turnkey Property
Potential is a buzzword that you’ll hear a lot when you’re viewing properties. Although there is an element of truth to the process of renovating and selling a house, there’s a lot of realtor bluster too. Essentially, they need a way to advertise the building without being negative, so they lean on its ‘potential.’
Don’t fall for this tactic. Yes, turnkey properties are more expensive, but they come with less hassle. Plus, there’s no way to tell whether a fixer-upper will cost you more in the long-term. When your investment is ready to go, you can find tenants and start covering your expenses within days.
Houses that require renovating could take months before they are livable, and that eats into your profits. Also, some platforms provide a warranty for turnkey solutions. Roofstock has a 30-day free returns policy.
Get Ready To Make Tough Decisions
In a perfect world, you’d rent out your property to dream tenants who pay on time and never miss a payment. Unfortunately, not everyone is as organized, and it causes problems. After all, you’ve got debts to clear, and late fees and penalties eat into your ROI. Let it continue and you’ll end up with fewer resources than when you started.
When the tenants are attempting to steal from you, it’s not hard to evict them. But things can get complicated. Sometimes, the people living in your house are down on their luck after being fired or getting injured. Although you are happy to offer some leeway, you can’t carry on covering the costs forever. Nobody is saying you need to make them homeless, yet you will need to make a tough decision.
As far as real estate investment goes, this is probably the feature new investors underestimate the most.
No comments:
Post a Comment
Talk to me!