Interested in real estate? You’re not alone. As an industry looking at a healthy 6% growth rate over the next six years, real estate is popular for a reason. One way to make the leap from your current job into real estate is to dip your toe in the investment pool.
This article will discuss tips for getting into real estate investing, with an emphasis on rental properties. Let’s get started…
1| Pick a strategy
Investor Junkie discusses the different kinds of real estate strategies: passive and active.
Passive: This is the safest bet for someone who’s a novice to real estate. Passive investing often includes REITs (real estate investment trusts), which are basically like mutual funds. You invest in a REIT, or a company that owns/finances properties. This is a great way to diversify your portfolio while touching the real estate industry.
You can also invest as part of a crowdfunded effort—here are a few of the popular investment platforms people use.
Active: This strategy may include wholesaling (buying properties and selling to other investors), becoming an agent (buying properties and selling to individuals, families, and businesses), buying rental properties (buying properties and renting to tenants), or flipping (buying properties, fixing them up, and selling them for a profit).
2| Get smart
Now that you have your strategy, it’s time to study up. Try real estate courses in your area, watch YouTube videos, read blogs and books, and make sure you keep an eye on Zillow, Trulia, and other real estate sites in your area to get familiar with the market.
You’ll need to connect with other investors in your market. A great way to do that is to attend local REIA (Real Estate Investor Association) meetings. Click here to learn more about Madison’s REIA.
4| Invest in your first property
Let’s talk about buying your first rental property. Money Under 30 suggests the following formula for a profitable purchase.
Buy 10-20% below market value
Buying below market value does a few good things: if you need to sell in an emergency, you can lower it from your purchase price to sell quickly and come out even, and long-term, you’ve created big ROI for yourself.
Make sure the property can generate at least 15% ROI
For example, if you put $20K down on a house, the property should net at least $3K.
Set rent at 1% or more of the purchase price
Rent for a $150,000 house should be at least $1,500/month.
Keep savings on-hand
Experts suggest keeping six months of cash reserves just in case your property is vacant or needs repairs.
Of course, these numbers are meant to be guidelines and will not apply to every market or every situation. Madison is a competitive market, which may make it more challenging to fit these exact numbers.
Luckily, our team of realtors has been helping new and seasoned investors purchase properties for many years, and our market knowledge is second-to-none. Ready to start investing in your future with the help of real estate and the Cheng Real Estate Group? Contact us today!