Real estate is one of the hottest markets to invest in for first timers. It’s proven to be safe, reliable and churn out high returns on a monthly basis. Anyone can get on the real estate bandwagon, but not everyone gets off rich.
How successful you will be depends on how well informed and motivated you are in this business. Don’t think you can earn passive income just by sitting on your couch. Go out there, or rather online, and get all the information you need (such as reading this article). So scroll ahead to find out the best ways to become a real estate investment mogul:
Choose long-term value over looks
Just like with people, don’t judge the value of a property just by its looks. Doesn’t matter how new or posh a certain house looks, it won’t generate you any income if it’s located in some mining town in Tasmania. Select your locations wisely by taking note of wealth, population trends and local council laws. Even if you are buying at a place like Sydney or Melbourne, make sure the property is located at a good residential area with a high rent value. Always buy considering the ability of the property to retain its value into the future. You will get the best returns on your property over the long-term, not instantly.
Calculate the “cap rate” right
The Capitalization Rate, commonly called the “cap rate,” is the amount it would cost you to annually maintain your real estate. Getting this right is crucial for maximizing your capital gains. Basically, the cap rate is the purchase value of a property divided by the positive net operating income. For example, if you buy a house for $10, and you are currently making $2 out of it, then your cap rate equals 2/10, 20%. This rate will give you an idea of how much to expect from your investments and what adjustments you should make to earn more.
You can earn a decent income with annual rentals. But with some dedication and proper financing, you can earn significantly more by “fixing and flipping.” This term was coined in America by realtors who bought old property, refurbished them and sold them back at much higher prices. Be aware that this can’t be done overnight. You will need to think thrice before you buy a rundown house. Realistically estimate how much it would cost to fully repair. It’s better to overestimate without having to go over-budget. If you are fixing houses, know that location is everything.
Secure a steady income
Investing in anything is risky, so before you start, you need to have a solid monthly income to cover personal expenses. Ideally, you need to have some backup cash to cover the losses of a bad investment. It’s not wise to start investing in property if you are currently renting and don’t own a home. Buy a house first if this is the situation. You can always get a home loan or leverage the existing equity of the house to get funding to start investing.
The best way to get rich with real estate is to keep a clear head. Don’t speculate on the values and don’t underestimate the expenses. Know your market and stay up-to-date on the latest news.