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It’s nearly impossible to get through the day without hearing about how yet another company or individual made money in the real estate market. Investing in real estate means that you either buy and flip properties for a profit or you use those properties as rental homes. Many television series show flippers buying homes at auction for low prices, putting a little money into those homes and selling those homes for more money. While it is possible to make some money in this field, you need to look at tip on real estate investing for beginners.
Look at Cash Flow, Not Appreciation
Appreciation refers to how much a property increases in value from one year to the next, while depreciation refers to how much that property decreases in value. The problem that many new investors have is that they pride appreciation over cash flow. They want to increase the value of a property quickly in case they need or want to sell that home later. It’s more important that new investors put cash flow ahead of appreciation.
Let’s say that you buy a home for $100,000 and decide to rent out that home. The money that you receive from that rental property is your cash flow. You know that as long as you have a qualified tenant in that home, you’ll make money every month. If you decide to focus on appreciation, you might notice that the value of your properties rises and falls every few months and several times a year. This can leave you feeling like you want to tear your hair out and leave you with no additional income for any future properties.
During the real estate crash of 2008, home prices dropped faster than rental rates did. Rental rates only dropped by three-percent, while home prices dropped by 20-percent. When you buy and flip homes, you never know if you can get back your money or even if you can sell the home. With rental properties, you can make extra income each month that you can put back into your business.
See the Properties
If you need help with real estate investing for beginners, you should know that you always need to see the properties for yourself. Seeing those homes in person gives you a chance to peek through the home and see its condition, walk around the house and look at the yard and see the type of community surrounding that home. You never know when one house has such a low price tag because the neighbors constantly throw wild parties or if another house has a slightly higher price tag because the interior is in impeccable condition. While seeing the condition of the home is important, you don’t necessarily have to see it in person.
As more real estate agents use the Internet to boost sales, you can now find everything you need to know from the comfort of your home or office. Many agents will offer video tours of different properties, and others showcase dozens of photographs of the property. When looking at those videos and photos, pay close attention to the time and date stamp. This lets you know how long the house sat empty and how many days or months passed since the agent took those images. If there aren’t any stamps on the images, look closely at the exterior shots for signs of changing leaves, trees missing leaves, blooming flowers or snow, which will give you an idea as to when the agent took those pictures.
Get Everything in Writing
Real estate investing for beginners isn’t always as easy as the pros make it look. You can’t always trust that an individual will stick to his or her word, and you never know when a deal might fall through. You must always get any agreements in writing. Once you take over ownership of a property, you are responsible for that home. Many real estate investors use legal contracts that ensure former owners and banks responsible for bank owned properties pay for a home inspection, make minor and major repairs to the home and take care of any other issues.
Contracts with financial institutions is especially important when it comes to bank owned real estate. Many banks will agree to sell homes for much less than the asking price when buyers pay cash for those homes. When you reach an agreement, you must get a contract as soon as possible to prevent the bank from accepting a better deal before closing on the home. As a new buyer, you also need to look at the tax implications of investing. You’ll need to declare the income you receive from tenants, but you can often write off the money you spent on rehabbing those properties.
Separate Your Assets
One real estate investing for beginners tip that many people follow relates to your assets. When you buy and maintain homes under your own name, your name remains attached to those properties. Tenants can sue you over injuries sustained on the property, and if you have legal problems in the future, you might lose those homes. Owning an limited liability company is a better alternative to purchasing homes under your name.
A limited liability company gives you all the benefits of owning your own company will all the benefits of operating a corporation. When you buy a new property, the home becomes the property of the company and not you. You can withdraw a salary from your company and use rental income to pay for new properties and maintenance on existing homes. If you have some financial troubles, those troubles won’t impact your company. For example, a court might rule in favor of someone filing against you. The court can garnish your paycheck, place a lien on your home or take your bank account, but the court typically can’t touch any properties owned by your LLC. When it comes to real estate investing for beginners, many experts recommend that newcomers start an LLC before buying a single home.