A How-to Guide for the Aspiring Real Estate Investor

By | May 21, 2015

Housing prices are on the upswing so you may be seeking a new profit opportunity. The real estate market still offers promising options for new investors, even in today’s more scaled-back environment. Here are a few tips to help you get started on your path to investment.

Determine Your Ideal Property

There are many properties on the market; figuring out which one is right for you depends on your personality and investment goals. If you’re looking for a long-term investment, you might start with a single-family home. If you have a high tolerance for risk, perhaps a fixer-upper is more your style. However, a few general rules of thumb are that well-kept houses and those with lower prices are the best bets for maximizing your rental income. One option you should consider is to purchase the home as a personal residence, and after making improvements, move it onto the rental market.

Check Your Credit

Anytime you make a big purchase, whether a car or house, lenders always want to check your credit score. Investment property is no exception. If you are seeking a loan, you’ll want to maintain a strong credit profile, maintaining a credit score of over 740, as well as a low debt-to-income ratio. If your score doesn’t meet this threshold, don’t despair. If you have the money to pay for additional fees, you still may be able to secure a loan for a low interest rate. If you offer a larger down payment or have other positive attributes, you could also improve your odds of getting a great loan.

A Down Payment is Essential

Just as if you were buying your own home, a down payment is a must if you are looking for investment property. You’ll need mortgage insurance on any property you purchase, but at minimum, you will have to offer 20 percent if you are hoping for a standard loan. If you’re hoping for a reduced interest rate, you may want to go higher, perhaps to 25 percent.

Look for a Smaller Lender

If you’re not having luck with the big banks, going smaller may be your best bet. Local banks or credit unions may be more willing to work with you if you have some blemishes on your credit report. A few other options include online lending services, often referred to as “peer-to-peer,” or consulting a mortgage broker.

Figure up Your Expenses

To make money, you have to spend money. Investment properties are a great profit-maker but it is easy to underestimate your initial expenses. Just as with a car, you’ll need to purchase insurance from a knowledgeable Greensboro insurance agency. Among other costs you’ll have to cover are water, utilities, legal fees, fuel, maintenance and various capital expenses, among other fees. In fact, it’s smart to assume that your expenses will be able half of your total income derived from investment.

Make a Solid Investment in Real Estate With Careful Planning

While the financing process may not be as quick as it was even ten years ago, there are lucrative opportunities just waiting for the right investor. By making a careful plan and researching all your options, you’ll be well on your way to turning a profit through your real estate investment.