(Newswire.net — April 16, 2022) —
Investing in real estate is an exciting opportunity to build wealth. But there’s so much to learn to maximize your earning potential as a new real estate investor. So, before you put an offer on your first income-producing property, here are five tips to get you started.
1 Define Your Goals
Real estate investing looks different for everyone. Some investors want one or two rental properties to generate passive income on the side. Others may have visions of a real estate empire. Whatever you see for your future, you’ll need to clearly define your goals before you start.
That means answering questions like:
- How many properties do you want to own in the next 1, 5, 10, and 20 years?
- What’s your desired cash flow from rental properties?
- How many hours per week are you available to dedicate toward real estate investing?
- What resources do you plan to use to learn about real estate investing (podcasts, books, mentors, local groups, etc.)?
Answering these questions to define your goals can also lead you to create a business plan before your first investment. That way, you understand the math upfront and can make sound financial projections before visiting a bank or lender.
2 Understand Tax Rules
Investing in rental properties is a new business, and that means it adds a layer of complexity to your taxes. It’s essential to work with a tax professional to understand what deductions you’re eligible for and how tax-advantaged treatment works if you buy and sell properties using a like-kind exchange. While you may not take advantage of every tax break with your first investment, understanding the rules will serve you as you make subsequent real estate investments in the future.
3 Have a Separate Emergency Fund for Real Estate
If you’re branching out to real estate investing, you likely have your financial house in order. That means you probably have an emergency fund with 3 to 6 months or more of living expenses. As you shift focus to building wealth through investing in real estate, it’s important to also prepare for emergencies with your properties.
A real estate emergency fund means you can cover repairs or replace appliances when needed. You’ll also have money set aside for taxes, legal fees, or other financial responsibilities that can crop up after the property closes.
4 Plan for Property Management
Some new real estate investors aren’t quite prepared to also become landlords. If you’re ready to take on the hands-on ownership required to be a landlord, great! But if you want to be the financial backer and no more, you’ll need to find a reputable property management company to oversee day-to-day responsibilities.
5 Put the Right Team in Your Corner
Running a real estate investment business means finding a team of professionals to support you. Your team may consist of an attorney, accountant, real estate agent, property management company, and more. Often, a well-connected real estate agent can put you in contact with verified, reputable professionals in your area to fill the gaps on your team.
The Bottom Line
New real estate investors need to clearly define their goals and find support to be successful. Be sure you understand tax rules, have a separate emergency fund, and plan for property management, too. Putting these guard rails in place can help create a solid foundation for a lifetime of real estate investing.