What do billionaires Donald Trump, Mark Zuckerberg, and Richard Branson have in common? If you take a look at their investment portfolio, you will find that they’ve all made sound investments in real estate.
Indeed, real estate is one of the world’s leading wealth creators, accounting for about 10% of the richest billionaires on the planet.
You too can unlock a brighter future by investing in properties today. Here are seven tips for buying a house as an investment:
Be Clear on Your Financial Goals
The first rule of investing is understanding your “why”. What’s your purpose for investing? Are you looking to generate passive income while you continue to work and climb the corporate ladder? Do you plan to live exclusively off of the profits generated by your property investments? Are you looking to flip a house and sell it for a healthy profit?
Asking these important questions will give you clarity on the kind of property you should invest in and how it fits in with your financial goals.
It’s All About Location
There’s a saying in real estate that you should buy the worst house in the best neighborhood. Why? Because even if a house needs to have some work done on it, its being in an excellent location will guarantee that you’ll attract more renters or buyers than would a beautiful home in a less desirable part of town. Simply put, location trumps every other factor in real estate.
When looking at homes for sale in South Orange County, think location first, property second. You can always fix up a property, but you can’t fix a bad address.
Get Ready with a Sizeable Down Payment
A rental property requires stricter financing approval and isn’t covered by mortgage insurance. Instead of the typical 1% to 10%, you’ll need to shell out a down payment of least 15% to buy, say, a townhouse for sale in Orange County.
Of course, the exact amount you will need to prepare will be determined by factors such as your credit score, assets, and debt-to-income ratio, among others. As with any real estate purchase, make sure your finances are in order to get the best financing deal possible.
Choose Your Property Wisely
Different types of homes serve different needs. You need to understand who your ideal renter or buyer is before purchasing a property.
If you’re catering to people who want a low-maintenance home in a cosmopolitan environment, consider investing in condos for sale in Orange County. However, if you want to attract families who want more privacy while still having access to urban conveniences, perhaps a single-family home in the suburbs will be a better choice.
Understanding local real estate demands will allow you to make smarter, more profitable investments. Luckily, a trusted agent can help provide you with that information.
Prepare to be a Landlord
All properties are subject to wear and tear, and addressing repair and replacement issues will fall squarely on you, the landlord. But do you perform the repairs yourself or hire a contractor to do it for you? The DIY route will save you money, presuming of course that you’re handy with tools and have the time for maintenance work. Hiring a third-party contractor will free up your time, but will eat into your profits.
Coming up with an effective property management plan should be one of the first things you do as a newly-minted landlord.
Calculate Your Profit Margin
An investment isn’t an investment unless it gives you a return. So before you rent out your property, have a clear idea what your profit margins will be. A good guide is the 1% rule: each month, the property should bring in a profit equivalent to 1% of its purchase price. A property that cost you $450,000 to acquire, for example, should be rented out for at least $4,500 per month.
Of course, this rule of thumb may not always apply. For instance, if you bought a house in an up-and-coming neighborhood, you might not see its full rental income potential for quite a few years.
Avoid Fixer-Uppers
As a first-time real estate investor, it might be tempting to purchase a fixer-upper home on the cheap and convert it into a prime property. That said, “flipping” a house entails working with numerous contractors over several months, a time-consuming endeavor where costs can quickly balloon out of proportion. A more beginner-friendly approach is to consider move-in ready properties such as condos or townhouses.
Looking for suitable investment properties? Let the Cordova Real Estate Group assist you. With our deep expertise in California real estate, we can help you find the best condos, townhouses, and luxury homes for sale in Orange County, CA.
Get in touch with us at 949.207.4040, or send an email to mc(at)southorangecountyliving(dotted)com.