Many of us would often watch the home-buying process as shown on TV in fascination. Buyers are shown finished and updated properties where they can raise a family, one that’s close to work or whatever perks they desire in a house. However, the rarely shown real estate participant is an investor. Their component of the home-buying process is not as glamorous as the end-buying process, as referenced above. Theirs is a field of numbers and locations. There are many benefits to being a real property investor—as long as you understand the process and can make proper calculations.
Know your budget
Investors typically have a high budget, as they would purchase properties using their cash. At times, to lessen the risk on their savings, investors would combine their funds with other investors in a Limited Liability Company (LLC). By combining your funds with others, you will still have an ownership interest in the property and will receive a return on your investment. Speak to a business attorney on forming, managing and protecting your assets in an LLC. An investor can also combine their funds with a mortgage, which is typically done in large commercial investments. Once a budget is finalized, an investor will know the price range and type of property they can purchase.
Know what type of property to invest in
Many investors start their investment in small 1-3 family residences. Others invest in large commercial and mixed-use buildings because, typically, larger properties yield larger returns. An investor may acquire a residence for much less than the market value, renovate it and resell the property for a profit. The investor can purchase a dilapidated property, one in foreclosure, bankruptcy, or properties in divorce and partition actions which would often sell for prices lower than the market value.
Investors can also purchase a multiple dwelling and earn income on the rent. To get a higher net income, investors should research developing neighborhoods, where rents are steadily increasing so they can make a purchase. The investor must research the cost to upkeep the property. They must calculate the tax rate, water bills and other expenses to keep the property in good condition. They should then subtract those expenses from the net income earned from rent to calculate their profit. In a neighborhood where market value of properties is steadily increasing, investors can sell in a few years to cash in on their equity.
When investing in a commercial property, the investor should consider the type of businesses that their property can attract. They should also research the location, as easily accessible businesses are more lucrative. The investor should calculate the expenses to upkeep the property and subtract it from the net income. Commercial properties are valued by the square foot, so the investor can hire a management company to help increase the value of each square foot of the building. Speak to a real estate agent to help you find the best property for your budget.
Know your real property laws
If an investor acquires a property to earn rental income, they should know their local landlord-tenant law. They need to stay abreast with late-paying tenants, as that would negatively impact their income and their profits. The investor, as landlord, should also know the rules for requesting late rent and the court procedures for eviction. An investor should also know the laws that relate to heating the building in winter, laws for alarms and smoke detectors, laws for renovations and regulations by the Department of Buildings and other municipal agents. Speak to a landlord-tenant lawyer to learn more about the legal process.
Being a real estate investor can be lucrative for those who research market trends as well as information on their property. Investors can often see the potential in a property and make their purchase based on its income potential. They can overlook looks. To maximize income, calculate all expenses associated with the transaction. Know how to manage your property. Finally, enjoy the bounty of your property’s equity.