While TV shows on buying investment properties make it look easy, becoming a real estate investor can be a trap for the unwary. Here are several things novice investors should be aware of.
Pick a Niche: When you’re new to real estate investing, you’d be wise to start small and pick a niche where you can develop your investment property owner skills. Get your feet wet on one or more smaller properties before tackling a bigger and more complicated investment. Consider everything from a single family home to building a rental apartment in the basement of your own house.
If you’re in a position to acquire a two-family unit or mixed-use property (with a business on the ground floor and living quarters above) you can live in one unit and rent the other. The tenant may pay a portion or all of your mortgage and maintenance costs.
Do Your Homework: Once you’ve decided on your niche and found just the right property in the right location, conduct due diligence before buying, to ensure your investment is sound. Most importantly, work with a good real estate agent who has experience in investment properties, knows the neighborhoods you’re considering, and is familiar with applicable bylaws.
Do the math: Before you buy, crunch the numbers to be sure you can afford it. Factor in the cost of repairs, overestimate the total cost, and underestimate the payback. Remember, your rental could be vacant for some time between tenants, so plan ahead for the reduced income.