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Latest posts by Gea Elika (see all)
- Accepting the First Offer on Your Home - May 18, 2018
- FOR SALE: Consider this Before Making a Price Cut on Your NYC Apartment - May 17, 2018
- What is a Real Estate Closing Statement? - May 14, 2018
Real estate investing seems so easy. In 2016, the United States had 44 billionaires that accumulated most of their wealth from real estate, according to Forbes. New York City real estate moguls are well-represented on the Forbes 400.
We don’t argue that real estate investing can be lucrative. But, it is not an easy path to riches. Like any other business, it takes hard work, intelligence, and some luck. We offer some tips for those starting out to make the path a little smoother.
Flips are not quick and easy
It is tempting to make a quick buck buying a property, fixing it up, and selling it. The reality is typically much different, though. Real estate is not the most liquid investment, and it turns more illiquid in a down market. This means your property can sit for months while you pay the carrying costs, including the mortgage, taxes, insurance, utilities, and common charges.
Even in a seller’s market, the construction needs to go smoothly – on time and within your budget. Otherwise, this eats into your profit. Do not forget to factor in closing costs, including the commission, when you sell. If you turn a profit, there are also short-term capital gain taxes.
Do your homework
You need to know all you can about the building and surrounding neighborhood. This means reading the board minutes and financials. You should also visit at different times to understand the building and neighborhood dynamics. If this is a building you would want to live in, others likely will feel the same way.
It is in your best financial interests to have a complete understanding of your major investment. While you cannot predict the future, having full knowledge provides a certain level of reassurance.
Know who to trust
Your exclusive buyer’s agent is someone you can have complete faith in. There are others you can trust to provide you with unbiased and good advice. Providing you have done your homework, your real estate attorney is another invaluable advisor. In fact, both have a fiduciary duty to you.
There are plenty of other people who will offer you advice along the way. You should take these with a grain of salt. Friends and relatives are likely to offer you unsolicited advice. Unless they have undertaken similar ventures, it is best to remember the adage “that you get what you pay for” when they try to pass their guidance along.
Think outside the box
The time to make a lot of money in hot areas may have already passed. You can consider an up-and-coming neighborhood or one adjacent to the hot area. As people consider alternatives, these places will pop up on their radar.
You do not have to live through the bumps a neighborhood endures when transitioning since you are not residing there. Your patience could be rewarded. There are two ways to make money as a real estate investor. These are capital gains that come from price appreciation and the yield, which is the amount of income received annually compared to the initial cost. Both improve based on the price you pay.
Tips for Finding the Perfect Investment Property
If you’re in search of the perfect investment property in the New York City area, then there are some real estate-savvy pointers to keep in mind before you make your purchase. Besides, just because you think a particular property is desirable doesn’t mean future renters will. To help you get the best return on investment, here are four tips you should follow when searching for an investment property.
Put Yourself in the Renter’s Shoes
One of the best ways to find an investment property that will satisfy your monetary expectations is to look at properties from the renter’s perspective. Is the home or apartment worth the amount of rent you’re expecting to charge? Does the neighborhood justify the costs?
Image via Flickr by Philip Taylor
Everything from the area and the size of the bedrooms to the number of closets, the neighbors, and the neighborhood itself play a huge role in a renter’s decision. For an investment property, sometimes you have to put the renter’s desires ahead of your own if you want to achieve the best financial results.
Run the Numbers
Many buyers looking for investment properties often don’t run the numbers until it’s too late. A cost-effective way to look at a rental property is to assume that a considerable percentage of the rent you receive will go toward expenses — like property taxes, insurance, and common charges — before it affects your mortgage payment.
This means you have to get the monthly mortgage down to a reasonable price, so the rent covers mortgage costs while still putting some money in your pocket after expenses. With that said, buying the property in cash or with a large down payment of 50%+ can put the numbers in your favor to the extent of the investment.
Avoid a Fixer Upper
Although the price of an apartment or home that needs a little work is probably attractive, a fixer-upper could spell trouble down the road. So, instead of pouring your finances into a less-than-desirable property, raise your budget and find a home or apartment that will give you a return on your investment from day one.
Fixer uppers are great if you have the time and patience it takes to restore the property to its former glory, but there are a lot of strings to pull to make that happen, including finding the right contractor and pulling the necessary permits. If you want a lucrative property, find one that’s cosmetically ready, mechanically ready, and move-in ready — it’s worth the initial bump in the budget.
By keeping in mind the tips above, you’ll find an investment property that turns a profit.