Many people have considered investing in real estate, but aren’t sure if the time is right, what’s involved or where to start. Investing is exciting, but takes a lot of forethought and preparation to get it right. Being the owner of several investment properties in Central Florida and working with fellow investors on investment deals, I’ve learned a few things along the way; Many of which I wish I knew before I got started.
Hopefully, these real estate investing tips will help increase your chances of success in your investing journey.
You found this post, so you’re on your way to being a successful real estate investor! Researching the process, the market and your options are critical when investing in real estate (or anything else for that matter).
According to Business Insider, there has literally never been a better time to buy a home in America. If you have been paying attention, you know that home prices and interest rates haven’t been this low in years. According to the latest data from the National Association of Realtors, the home affordability index has now entered its third year of record highs.
Weigh Your Options
Determine which type of property you want to invest in; long-term residential, short-term-rental, fixer upper (to fix and flip), commercial or undeveloped land. For the purposes of this post, we will focus on the first two and cover the others in future posts.
Rental Demand – Due to the amount of foreclosures and the high unemployment rate, rental demand is expected grow by nearly 6.6 million units through 2016, with about 4.2 million new renters attributing to the total.
Vacation or Short-Term Rental Properties – Fortunately, here in Orlando, there are ample opportunities for success when investing in short-term or vacation rental properties. Orlando drew more than 50 million visitors in 2012, the first travel market to reach those numbers, and is expected to continue growing.
Develop Relationships with Experienced Partners
Relationships are key to successful real estate investing. Whether the relationship is with a realtor, bank, inspector, or plumber, having trustworthy solid contacts can make your life less stressful and more profitable. You should first start by finding a real estate agent who has experience buying and selling investment properties and/or managing those properties. Odds are they have an arsenal of dependable contacts they would be willing to share with you.
Location, Location, Location – We’ve all heard it before, ‘There are three things that matter in property: location, location, location.’ And that is true, especially if you buy a property with hopes of renting it out.
For long-term rentals, look for high-rent or heavily populated areas, it may not be in your best interest to buy in very rural areas where there are fewer people and potential renters. It is also beneficial to find neighborhoods with low-crime rates and good school districts. Renters tend to look for rentals in safe neighborhoods and good schools for their children.
Other selling points include the proximity to public transportation, parks, shopping centers or other amenities. This will not only attract renters, it can be advantageous should you decide to sell in the future.
Short-Term or Vacation Rentals – Determining the correct city or region is vital to your success. Some of the best real estate deals can be found in Orange County, Florida; notably Orlando. Disney attracts over 17 million visitors a year, so buying vacation rentals near Disney property can be very lucrative to an investor.
In both situations you will also need to think about how much rent is reasonable to charge based on the area and the amenities the property has to offer.
This may not be a big factor for some, perhaps you already have a reserve set aside, you recently had a windfall or have a personal lender that you’re working with. If this is not the case, however, you should meet with potential lenders and possibly even a financial planner to determine whether or not you have enough assets in place to handle the ups and downs that you could face with investing.
If applicable, decide how much of a down payment you can make and how much you can afford for a monthly mortgage payment. Determine how much you will you need to earn in rental income in order to keep up those monthly payments and remember – If you plan to rent a property, you need to count on paying the mortgage, in the event there is a vacancy. The basic rule of thumb is to have at least six months of mortgage payments set aside.
It is also in your best interest to get pre-approved for an investment property loan first, and then secure the services of a real estate agent to help you find the type of property you seek.
Be sure you have a solid team in place! It is a dire mistake to wait until the property needs repairs to find someone to fix them. There are also legal matters that may come into play, so you will also need to have a relationship with an attorney in the event tenant issues arise. If all of that sounds too daunting – and you know you don’t have the time to build those relationships, you should consider hiring a property management company.
A competent property management company, such as our trusted partner, Florida Property Services, can add significant value to your investment. They see hundreds to thousands of applications, so they know what works and what doesn’t work.
They are also an invaluable resource in protecting your investment. Since many investors, especially in the Orlando, Kissimmee and Davenport areas, live abroad (The UK, Canada and Brazil); it is vital to have someone available locally who can monitor the property, check in guests, not to mention promptly taking care of an emergency repair and ensuring that regular maintenance repairs are handled timely and efficiently.
How will you attract renters and keep them in order to avoid any long-term vacancies? Understanding the rental market in your area will be critical to determining your potential vacancy rate and marketing effort. Implement a thorough screening process to weed out any prospective tenants who aren’t likely to honor the terms of the rental agreement.
Once you’re mulled over all these considerations, it’s time to find the right property and make an offer. Your real estate agent can help you with this process.
Good luck and please let us know if we can assist you in your investment journey!