Having just moved, by buying or selling a primary residence, many individuals and families consider using their real estate profits or access to capital to invest in additional properties. Real estate investing has been a primary and highly effective wealth building tool for more than 100 years. However, recently, with plummeting real estate prices in areas of the country, combined with greater difficulty in obtaining mortgage loans, many would-be investors have questioned the wisdom of buying investment properties. (If you are looking to add an investment property to your portfolio, read Top 10 Features Of A Profitable Rental Property.)
The Time is Right for Real Estate Investments
The reality of the situation is that, while it may be more difficult to obtain financing for investment properties, there has rarely been a more opportune time for real estate investing. Sophisticated investors understand that the time to invest in any asset is when prices have fallen, not when price is peaking. The old adage "buy low, sell high" holds particularly true in real estate.
Substantially lower property prices, combined with historically low mortgage interest rates, create the ideal environment for real estate investing. This is not mentioning the high number of properties for sale and many owners' greater willingness to negotiate on price or terms, providing the real estate investor with many choices. Although it is more difficult to get a mortgage on an investment home, interest rates are ultra low; this often creates a positive cash flow situation from renters.
Many new investors need guidance, regarding how to proceed with their first real estate investment. Here are three critical tips to assure the best chances of success:
Let an Experienced Partner Show You the Ropes
Having a mentor is the fastest and most efficient way to learn real estate investing. This mentor can be someone in your family or a friend who already owns investment real estate in your chosen area. Realtors are another excellent source for mentors. Realtors are motivated by earning commissions from your deals and often handle property management duties for a fee. This creates excellent synergy between the new investor and the experienced realtor. Many realtors have their finger on the pulse of the local real estate market, thus having the knowledge and skills to direct investors to the most advantageous investment real estate situations.
Know the Right Locations
Wealthy real estate investors will tell you there are three secrets to success in real estate: location, location and location. Buying in areas of high rent and low supply of properties is the ideal situation. Avoid rural areas or areas with notoriously poor rental histories. It's always better to buy the worst property in the best location, than to buy the best property in the worst location. If you are unsure of the location of a potential investment, spend some time investigating!
Have Money Lined Up
One of the most important attributes of successful real estate investors is the ability to act quickly and decisively, when the perfect opportunity presents itself. Having the financing or capital lined up to pounce on the right deal, is key for success. It is also critical to have at least six months of mortgage payments saved up, prior to buying the first investment property. Even in the most ideal location, it may take some time to find a tenant. In addition, having money within reach makes dealing with the inevitable repairs easier.
The Bottom Line
Many people use real estate profits or access to capital to invest in additional properties with great success. However, the real estate market hase been very lackluster as of late. If you have the money, expertise, connections and insight of good locations you can still make money.