Quite a few millionaires have made their fortunes by investing in real estate. Still, it’s more complicated with a lot more to learn than, say, investing in stocks. There is a ton of due diligence to perform, and complicated financial and legal matters to consider. But with a little help from the experts, it becomes more manageable. So if you’re new to real estate investment, here are some tips from a top NWA agent.
Consider Location and Neighborhood First
Even if you’re new to real estate investment in NWA, you’ve heard it a bazillion times: the three most important considerations in buying real estate are location, location, and location. It’s still true, though, especially when it comes to investment properties.
A money-making property has to be in a good location. And that means, generally, in an area with low crime, low vacancy rates, and good schools and where property values are likely to increase over time. A bargain property purchase is not a bargain at all if you can’t get good tenants or find buyers.
Find Wholesale Properties
A challenge for many who are new to real estate investment is finding the good deals that promise a healthy return on investment. Top agents in NWA recommend, as a tried-and-true way of finding those affordable properties, going through wholesale dealers. Look for properties that are steeply discounted and that will, with some attention, greatly increase in value over time.
Sure, when you buy wholesale properties, you’ll probably have to do some work on them. But the low price gives you the financial wiggle room to make the needed repairs and then sell at a profit later on. All you have to do is run the numbers beforehand to make sure the repair and rehab expenses don’t outstrip your potential profit.
Partner with a Builder
Due to the lack of inventory we’ve been experiencing lately, finding these wholesale deals has gotten more difficult. So another option is to build your own inventory by partnering with a builder. Some of our local builders may already have parcels ready to go and floorplans to choose from. Within a few months, you could have a brand new investment property that will need minimal maintenance for the next several years.
But why would a builder sell it to you for below market value? Well, for one thing you could carry the construction note, refinancing into a conventional loan upon completion, thereby reducing the builders overhead and risk in the project. Then you could pay them a flat fee or an agreed upon rate for their project management services. This leaves equity for you at the end of the deal which could even count as part of your down payment.
If you’d like to learn more about finding a suitable builder, just book a FREE Strategy Session with me Here.
Consider the ROI
This is a very closely related matter, but it bears repeating in another form for those new to real estate investment. And that is, above all, to consider carefully your return on investment (ROI), which is tied closely to the condition of the investment property under consideration.
A fixer-upper, such as you would likely get from a wholesale dealer, can often be a great bargain with a lot potential for ROI. But the needed repairs cannot be too extensive or too major. Otherwise, these repairs and rehabs will eat up all the profit you might have made, which is the exact opposite of your primary investment goal. So if you find the property has major structural issues or needs mold or asbestos abatement, you should probably pass on it and look for another.
This is one of the major benefits in going with the New Construction strategy. But even then, you must keep a careful watch on the numbers, and make sure the project stays on track and on budget. Most of the problems come from poor planning upfront. Change orders and delays will destroy your budget. Do everything in your power to avoid those issues.
Understand Tax Issues
For anyone new to real estate investment in NWA, the surrounding tax laws and issues can be more than a little confusing. But besides the complexity, there are several tax benefits new investors should be aware of so they can take advantage of them.
First, there is the depreciation write-off. When you purchase an investment property with a structure on it, you are allowed a deduction for the depreciation of that structure. Usually, you can depreciate a residential building across 27.5 years, and a commercial building for 39.5 years. And with New Construction, you can itemize the pieces of the house in order to accelerate the deductions for even bigger tax benefits. You can also claim the ordinary deductions allowed for running a business like mortgage interest, maintenance expenses, and insurance.
Investing in real estate can definitely be a solid long-term earning investment – if you know what to look for when buying your investment properties in NWA. I would welcome the opportunity to help you achieve your real estate investing goals.
As a member of REI-NWA (the Real Estate Investor network), I can bring a guest to any membership meeting. I’d love for you to attend with me. It’s a great opportunity to learn more about RE investment, because they have guest speakers who discuss the ins and outs of the business. It’s also a great chance to mingle and meet the movers & shakers within our local Real Estate Investment community.