Has the pandemic urged you to start investing? Has it changed your investment strategy?
Since the beginning of the pandemic, people have been spending less on goods and services, and putting more money aside into savings and investments. Some people have investments in the stock market, others may be entering the crypto currency market. Most notably, many people have turned to the real estate market to grow their investment portfolio.
As much as people are fascinated by the booming real estate market, many people are hesitant to get involved in real estate investing. Whether it be the added headache of shopping for properties, financing second mortgages, or the commitment to a significant long-term investment. However, the real estate market is more accessible than you might think.
Real estate investing requires a good deal of planning before deciding to enter the market and purchase property. So, to better prepare you, here are 3 things you’ll need to consider before investing in real estate:
1. Financially steadiness
Real estate is not a cheap investment, you will need to have cash readily available for initial deposits, down payments, and purchasing fees. A down payment on a property is typically 5% of the purchase price. So, if you were to buy a house for $500K, you will need $25,000 in cash as a down payment, and the deposit made to the listing brokerage can be included in the down payment. On top of that you will need to pay for taxes, legal fees, and insurance. Once you have secured a mortgage for your property you will need to consider the stability of income needed to make monthly mortgage payments as well as utility bills on the property. Creating a budget is a smart idea to better understand your purchasing capabilities.
2. Knowledge of the market
The real estate market is now more complex than ever before. With a high demand for houses and a limited supply, you will need professional advice to effectively navigate the market. Connecting with a local real estate agent will help you significantly in the buying process. They will have access to property showings, will advise you on structuring an offer, and provide insight on location and property conditions. Furthermore, their network of accountants, lawyers, inspectors, and mortgage specialists will be great resources to you when planning your investment.
3. Feasible strategy
You won’t last long in the market if you are unsure what you are looking for. Once you understand your financial capabilities, map out what your investment will look like in the long-term and plan out the steps to take to achieve your goals. Do your research and ensure your investment is strategically sound.
Now on the talk about strategy, it's important to plan a strategy to maximize the return on your investment. Here are 2 concrete real estate investment strategies:
a) Purchasing a Rental Property
There is currently a significant market for renters, and this market will continue to grow as housing prices continue to rise. With starter homes rising upwards of $400K, it is becoming more difficult for first time home buyers to get approved for such high mortgages, thus there is more people looking for rentals.
There is a wide variety of rental properties to suit the unique needs of investors. Here are a few examples.
Single family homes with long-term tenants make a stable investment option.
Student rental properties require work but will provide great return with high rental rates.
Multi-unit properties will be a larger upfront investment that will generate a larger amount of additional rental income.
Condominium units are easy to maintain and a very simple investment for new real estate investors.
Commercial property is a complex investment, but with the right lease in place, this investment can lead to profitable returns.
b) Purchasing a “Flip” Property
Flipping property can be a more risky and time-consuming investment due to the nature of work and added expenses. However, flipping has proved to produce some of the largest short-term ROI. In today’s market it can be difficult to secure a cheap property for a flip given the high demand. But finding the right property at a good price is the golden ticket to a lucrative real estate investment.
The most important thing to consider is a flip is where to spend money to make money. Here are a major renovation that will grow the value of the property.
Kitchen – renovating a kitchen can result in 75% of recouped value
Bathroom – a new bathroom can result in 70% of recouped value
Finished basement – an expensive renovation that could recoup 80% of its value
Decks – adding outdoor structures can easily result in 80% of recouped value
Outside of large renovations there are smaller projects that will increase the appeal of the property and add value to potential home buyers. Things like; fresh coat of paint, new floors, updating lighting fixtures and outdoor landscaping.
In conclusion, real estate investing is a smart investment option that you should consider if you are in a good position to commit financially. There is never going to be the “perfect time” to invest in real estate. The market is continually climbing upwards, and the peak is nowhere in sight. If you are interested in real estate investing here are the first steps you should take:
- Look at your finances and determine a feasible strategy.
- Talk with a mortgage specialist to understand your budget.
- Speak with local real estate agents to get an understanding of different markets.
- Begin looking for potential properties, and remember patience is key.
If you have any questions regarding real estate investing, please don’t hesitate to contact me. I am fascinated by the real estate market, and love speaking with people about market news, influences, and trends. Above all I hope this blog helps you #stayinformed.