Real estate investments are very profitable if the investor is wise in making crucial decisions. If you are a young entrepreneur looking for investment ideas, you should do proper research in all the categories. Mostly, people dig their surroundings and look for the options that are available in their region only. But only successful ones get a hold of the hidden gaps in the real estate market and fill them with creativity.
Find that one property type that you feel good about. Make sure of good returns and being a first-time investor don’t shy away from investing in flip-over projects. You would eventually need a good financing option that makes your investment secure. Steer clear of any heavy commitments to keep the debt or loan burden as little as you can. Keeping a keen eye for a good neighborhood is mandatory because opportunity hunting relies on it big time.
Real estate investors are people who invest in properties. Since it’s a tangible asset it is considered a reliable investment over time. It does take some time to sell but it never loses its worth. These kinds of investments could be passive or active, depending on the type of property you have invested in. Here are some tips regarding real estate investments for young entrepreneurs and first-time investors.
Identifying The Good Financing Options
Even after estimating the ARV, you would have to find some good financing options in order to secure a good house with good returns. This is mostly done when the property is beyond your budget but has the potential for good returns. Where some entrepreneurs prefer a bank for a mortgage loan some take advantage of other options mentioned below.
Passive Real Estate Investment Opportunities
There are several opportunities to invest your money in real estate. It is similar to investing in a stock market by purchasing a share of a pool of investments. By this you allow your equity to grow in value just like the stock market. This is a good investment and a chance to grow your equity, up to the mark till you can purchase your dream real estate investment.
One way for passive investments is to consider investing in REITs. These are real estate investment trusts that own the real estate and civilians are allowed to invest with them for passive income.
Real estate mutual funds are another opportunity for young entrepreneurs to contribute to a group of real estates aimed at good prospects. Though one should always consult with an expert before investing in new REITs for a secure return. Sometimes even wealthy entrepreneurs turn to crowd funding in order to finance a series of real estate investments. Consulting with them can also help you secure your investments.
Location Of The Property
The location of the property matters the most. If you are just getting started with real estate investment. Most probably you won’t have sufficient funds to invest in a neighborhood that is relatively expensive or considered elite. Above mentioned methods can give you a little bit of a boost to invest in the property. But if it isn’t working out one can always adapt to the situation and look for opportunities that are relatively lower in costs.
A good real estate investor always scouts for properties in different regions before making a purchase. Keeping an eye on your competitors and figuring out the gaps in their strategies could give you some advantage. There are several tips given to the new entrepreneurs by the real estate investors. Such as when choosing a property for rental one should look for a neighborhood that is closer to attraction sights. Some students and working-class people prefer a property that is closer to their work or college. Similarly, if looking for a commercial property you should go for areas with good infrastructure, an area that has a population of their required market and growth potential.
Stay Updated About Local Market
You must stay updated with the local market happenings. Pay attention to the housing market and real estate analysts’ forecasts. If you are investing in the real estate category that deals mostly with residential real estate, you should look for up-and-coming neighborhoods.
Points to consider when looking are what is for sale, how much are they asking? If you bought it, would it be sell-able for a more handsome price? What is not selling? Can you sell it? Or maybe why it isn’t selling?
The same goes for the rentals. The rentals sometimes are seasonal so you should look for the seasoned rentals and the rent trends. Whether the rental attracts working-class students or families? How much were they paying in rent last time? How much can you ask for if you remodeled and invested a little bit? These crucial questions keep you updated and in the competition and play a good role in better returns.
How To Finance the Investment in Real Estate?
In the real estate market, there are different types of properties to invest in. If you already have a property and it’s live able you can list it for the vacant as a rental. In a similar manner, you can also buy the residential property to rent out to families or working-class singles. The same goes for the commercial property, you can buy it and rent it out to those who are running the businesses.
If you have some more room for the investment you should consider flipping a house. In this flipping house, you purchase a property to make it sell worthy for a higher price by repairing it a bit.
This takes a lot more analysis than renting. You would know exactly what repairs need to be done and how much they will cost. Flipping houses could go sideways and often it does. There are several factors to consider that are crucial in flipping a house such as:
Location of the property
Costs of remodeling
Time required for the remodeling
These three factors demand way more research and a good eye is needed to secure a good amount. Many real estate entrepreneurs consider single-family homes as their first choice of investment. But there are some who consider other options as the first investment and still make a good fortune out of it. The core reason is you solely. It’s your determination and goals that will determine the successful return of your investment. For further help here is the formula to calculate the after repair cost.
Calculating After Repair Value (ARV)
One can easily determine the ARV by researching the comparable or comps in the listing service that are recently being sold in the market. Make sure the comps you are considering as a comparison are as similar as the subject property. While comparing you must take a good look at the following facts:
What is ARV in real estate, if not for a great way to analyze a deal’s potential? Therefore, if you want to analyze your next deal accurately, you should follow these steps:
- Analyze Comparable
- Calculate Costs And Expenses
- Obey The 70% Rule
- (Purchase Price) + (Value From Renovations) = After Repair Value
Invest in an Accountant
Investing in an accountant is a privilege that most young entrepreneurs cannot afford. But if you can, you must invest in an accountant. Sometimes when you are investing in property to sell it after remodeling you might want to consult with a construction company. They can always give you a better estimate of the remodeling cost. That your accountant can add up and give you the final expense and potential return numbers. The accountant’s expense can be reduced to a minimum after the savings a professional can bring to the business.
- Upgrades that property would need.
- How much finishing work would be needed?
- What features are already added to the property, and what can be easily enhanced?
When was the Property Built?
Sometimes even the old buildings have good bones. But to meet the perfection level and a secure return on investment the building shouldn’t be more than 10 years old.
The Construction Style of the Property
One has to determine the craftsmanship imbued in the property’s construction. Including the wood frame and the type of the bricks regarding the targeted market.
Location of the Property
Location of the property matters the most and the pros recommend that you should look for the property that is within a one-mile radius, to have a good analysis.
Optimally investors look for almost six properties for the analysis. These properties are usually the ones that fall in the above-mentioned categories and were sold in 90 days period. In rare cases, one might have to look for properties that were sold six months ago.
Now if you have calculated the repair value after doing all the math and have averaged the sales price of comparable properties. You can have a clear idea of the investment cost and the final sale price. Calculating the ARV is crucial for young real estate investors as it teaches you a lot about the current market that otherwise you might not have known.
Some real estate professionals use the ARV formula to determine the precise ARV. It goes like dividing the average per square foot price, then multiplying it with the number of square feet in the subject property.
If you are good at math and have a good sense of determining the cost, chances are you will be able to calculate the ARV of an investment on your own. But if you aren’t having a good time making sense of the calculations you must take the help of a professional. Many real estate agents that are experienced can get you the lump sum amount of ARV. Or for a deeper analysis, you can consult with a construction company for the nitty-gritty details and costs of comparative market analysis.