Purchasing an income property can be an exciting adventure, but also an intimidating leap if you are new to real estate investing. Luckily, Genevieve is here to share her wisdom and answer your most frequently asked questions after years of helping clients buy sound investment properties all while building her own real estate portfolio of single-family homes, multi-family apartment complexes with long-term rentals, and Airbnb-style short-term rentals.
How do I get started in real estate investing?
The best way to get started is to start educating yourself! There are some great books on real estate investing, and I always recommend talking to knowledgeable local resources. Talk with friends or family members who invest, seek out an agent to determine market conditions, and connect with a mortgage broker to determine what potential investment loans look like. Depending on your financial situation, you can also talk with your advisor about paying cash or setting up a self-directed IRA in which you can buy and sell real estate.
Should I look at residential or commercial real estate as my first investment?
Residential is the best place to start in my opinion. There is less complexity than commercial real estate and, if you are a homeowner, you already have some familiarity with the space. From there, you begin to narrow it down based on your goals and interests. Are you looking to flip homes, hold property as an income-producing rental, or create a short-term rental/vacation property?
How do I search for potential investment properties?
Determine your criteria and have a real estate agent like myself set up MLS searches that fit your criteria. Be sure to talk with your agent about off-market mailers or getting on wholesaler lists too. With the current low housing inventory in the Carolinas, you don’t want to rely solely on properties hitting the market.
What are some important factors to consider when viewing a potential investment property?
It’s important to think beyond the purchase and factor in the logistics of owning an investment property day-to-day.
If you are looking to rent a property, you’ll need to decide if you will manage it yourself or hire a property management company. That decision impacts both your bottom line and your level of time commitment. I generally recommend managing your properties that are in close proximity to you and hiring a property management company for any vacation rentals, Airbnbs or other short-term properties, as well as properties with more than 4 units.
If you are looking to flip, you want to nail down how the work is getting done and by whom, the timeline, and the budget out of the gate. Having not only a plan, but a contingency plan is essential. Surprises inevitably arise in every renovation and you don’t want that to derail you.
How do I evaluate if a property has a strong projected return on investment (ROI)?
If you are looking to hold & rent the property, consider the capitalization rate. This is the rate of return based on the income the property is expected to generate. Of course, you will want to consider cash flow if you are taking a loan, but the capitalization rate is the most important factor as it tells you your real return. Remember that not all properties cash flow day one. If the rent is below the market, it can take some time to get the property up to the current market rental rates, for example.
If you are flipping the property, the ARV, after repairs value, is the major factor. Focus on the renovations and upgrades that will increase your list price most.
What are some of the benefits of owning investment properties?
Beyond the short-term wins of added income, one of the best benefits of owning investment properties is the growth in equity when you hold onto a property long-term. There are also potential tax benefits including deferring capital gains taxes with 1031 exchanges or taking depreciation on your taxes.
What are some of the risks of owning investment properties?
Don’t let the risks scare you off from investing. The risks are similar to those that come with owning your primary residence. Namely, unexpected repair costs, like a roof leak or new HVAC system, and potential fluctuations of home value based on market shifts or future recessions. None of those risks scared you when you bought a home to live in and the same should hold true for an investment property. Additionally, you’ll need to account for potential vacany rates on rentals or construction cost overages on flips. If you have done your homework and properly prepared, you can handle these scenarios and have a very successful investment.
Do you have any more real estate questions for Genevieve? Don’t hesitate to reach out to our team with any of your real estate questions. We’d love to help!
