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So
You Want To Invest In Real Estate...
Not
long ago, investing in real estate was a domain reserved for the
ultra-savvy and the financially well-off. But in the past few years, the
boom in the real estate market has opened up the investment game to many
more people. In 2004, almost 25 percent of all homes sold were purchased
as investments. Although the market does seem to be flooded with
investors big and small, getting into the investment business is still a
viable opportunity. Real estate is a quality investment and you can
minimize the risks if you follow a few basic guidelines.
The
first step in investing in real estate is to analyze your financial
situation. Will you be able to afford a second mortgage? If you’re
purchasing real estate as a rental property, will the rent cover
expenses and upkeep? While you’re crunching numbers, keep in mind that
loans for investment properties differ from primary residence loans. For
example, non-primary residence interest rates are usually 1 to 2
percentage points higher. Also, you may be required to pay a higher down
payment, the loan may have a shorter term, and you may have higher fees.
If
you feel your finances are in order, your next step should be to acquire
the services of three professionals: a real estate agent, a mortgage
banker, and a real estate attorney. The real estate agent you choose
should have a good knowledge of real estate investments and—even
better—be an active investor themselves. Usually, people are pretty
good at hiring an agent and a mortgage banker, but fail to hire an
attorney. A good real estate attorney will help you with the more
complex legal aspects of investing in real estate.
Before
you start snapping up real estate right and left, however, do your
research. Then do your research again.
Not only should you learn the different types of real estate in
different areas in different neighborhoods, but you should also be able
to differentiate between good deals, bad deals, and break-even deals.
Never buy on a hunch. And remember: the old saying about location is
critical in investing. Buying a “fixer-upper” in a great location is
almost always preferable to buying a good piece of real estate in a poor
location.
Likewise,
if you decide your investment will be a rental property, learn the ins
and outs of being a good landlord. Always look for long-term renters and
make sure you carefully pre-screen all applicants. Having a rental
property can be just as intricate as and possibly more complicated than
buying real estate just to “flip” it (buying and then re-selling it
quickly). Being a landlord requires a solid time commitment, extra
financial considerations, and a good understanding of people.
Overall,
you need to have patience when investing. Wealth may not come your way
overnight. However, if you think as a business owner (rather than a
homeowner), make intelligent decisions, and are not afraid to pull the
trigger when you see a good deal, investing in real estate can be a
rewarding and profitable venture.
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