As a beginner real estate investor, know that there is a lot you need to learn. There are so many requirements, such as financial, legal, and doing proper research, involved in real estate investing in North America. That is why it is more complex than investing in stocks.
Robert “Rusty” Tweed is an economics and finance expert who is known as an expert in providing financial planning and investment advice to clients. Located in the Greater Los Angeles area he is renowned for his in-depth knowledge of real estate and investment in that area. Rusty Tweed would suggest anyone interested in real estate investment to really get an understanding of how things work before jumping into real estate investment.
But do not rush to get an advanced degree because there are some fundamentals you must first familiarize yourself with. Rusty Tweed, is an expert in real estate and happily shares these five tips below.
1. Location is Important
When it comes to investing in real estate, location is still important. Make sure the property is in a good location before putting yourself in a huge debt over the property. So, do not rush to pay the down payment.
You can search for the worst homes on the best streets. You will come across this principle as you learn more about real estate investing.
You can build your equity by investing in the worst homes on the best streets. The worst homes that need some work are properties in the great neighborhoods. You can fix up the home with your own money. Then, sell it to someone looking for a ready-to-move home in a good location. This strategy is known as “fixing and flipping”. A term used by professional real estate investors.
2. Seek Wholesale Properties
The main similarity between investing in the stock market and investing in real estate is you are seeking the best deals. As a shrewd stock market investor, if you are planning on holding too many stocks for a long time, you will not buy them at their high. Instead, you will put the Warrant Buffet principle to use, which means you get greedy when everyone is fearful. You will focus on buying beaten down stocks. Then, sell them when they turn around, which can make you a fortune.
You can also do this when it comes to investing in real estate. Do not pay “full price” for real estate properties. Instead, you can get steep discounts by looking for so-called wholesale properties. These properties need some work, and you can calculate to find out if rehabilitating the property is worth the final selling price.
ThinkConveyance notes: “When you invest $20,000 in real estate property, you can easily add twice that amount to your selling price. This is the main reason so many investors love investing in real estate because it allows them to maximize their return on their investment.”
3. Know the Tax Benefits
The people running our government do not want the government to be responsible for providing housing for people, especially if private investors do not provide housing. That is why they want private investors to provide housing for people.
That is why real estate investors get significant tax benefits from Uncle Sam. The main benefit is the depreciation write-off. To get a tax deduction, you just buy an investment property like a building. You will get to write off the depreciation of the building. For specifics, consult your tax advisors. Expect to depreciate a commercial building over 39 and a half years and a residential building over 27 years.
Remember, your real estate investment efforts are viewed as a business by the IRS. Therefore, as a business owner you are eligible to take “necessary and ordinary” deductions, such as mortgage interest, insurance, and maintenance expenses. Also, consulting your tax advisors for specifics is a good idea.
4. Check Your Credit Report
As a real estate investor, you may have to borrow money to buy a property, so do not start investing in real estate without checking your credit report.
If you find mistakes on your credit report, you should resolve these mistakes as quickly as you can. If you have legitimate problems, then work on improving your credit.
Understand that banks will not loan you money for a property that you do not own, but they will loan money to you quickly if you own the home. That is why you need to have a spectacular credit score.
5. The “1% Rule”
Do you want to rent out the property, you are buying, to one or more tenants? If yes, then use the “1% Rule” when deciding whether or not the price you are paying for the property is worth it.
What is the 1% Rule? It states that a property, which produces the income, needs to produce 1% of the price paid for it every month. For instance, if you want to buy a property for $150,000, then it should produce 150,000 x 1% = $1,500 every month.