Investing in real estate can be extremely rewarding in the long run and it’s a great way to build your savings for retirement.
However, you need to put in the time and effort to ensure a good return on your investment, and it’s not for everyone.
Here are five things you need to consider when you decide to invest in real estate, or you can simplify the entire process by using a company like TFS Properties.
#1. Know the Costs
Unfortunately, buying an investment property isn’t as simple as simply purchasing a property and watching the money come in. The costs involved in buying property are not cheap – however, buying a property outright or taking out a loan can definitely be worth it. But, there are additional costs you need to be aware of.
Costs like basic maintenance, yearly upkeep, upgrades, and other expenses such as utilities and taxes are also involved. And, if you decide to take out a loan, you’ll also need to factor in real estate investment trusts.
Based on specific requirements, REITs are companies that own or finance real estate property. REITs allow investors to invest in properties, and they pay out most of their taxable income. However, it’s the investors who are responsible for the income taxes.
Know exactly what you are getting into before you decide to invest in real estate – there are costs you may not be aware of, so make sure you factor everything.
#2. Choose the Right Property Type
Once you’ve set aside enough money to invest in real estate, you need to decide which type of property you want to invest in.
When purchasing rentals, you have a choice of residential or commercial properties. You can become a landlord by renting out a home or apartment, or you can list your property on Airbnb.
You can opt for the commercial option if you’re not interested in purchasing residential properties, or you can avoid renters altogether by buying a property to flip for a quick return.
Before buying property, you must decide on what you plan to do with it, and what goals you are working toward.
#3. Research the Area
Location is one of the key factors when it comes to investing in real estate. Don’t buy something in an area you’re not sure about just because the price is lower.
You must perform your due diligence and research the area – look for market value, what the location offers, and what the neighborhood is like. Knowing what type of property you are looking for can help you find out where to look.
Decide if the property is in a prime location for its purpose, and perform competitive analysis on the competition. If you’re interested in vacation or residential rentals, look for proximity to nearby attractions, see what the community is like, and consider other lifestyle factors.
If you’re interested in business rentals, look at the area’s population, demographics, and see if it has access to secure parking.
#4. Protect Yourself
Consider using an LLC to purchase your real estate if you are looking to invest in one or more properties. An LLC is a limited risk company, so using one can help you manage your risk.
The LLC would have ownership of the property (or properties) – and if anything happens, you are not held personally liable. Having an LLC company will also protect your retirement fund if something happens to your property.
An LLC company also allows for “checkbook control,” which will enable you to access your funds for real estate purchases quickly should the need arise.
Once you’ve opened an LLC by using your self-directed individual retirement account, your account becomes the business, and you become the business manager.
An LLC will help you access your funds when you need them – but bear in mind, that doesn’t mean that you can take funds for non-real estate-related purposes, or that you don’t need a custodian.
The funds you withdraw from an LLC need to be used on the property and withdrawals must be reported to your custodian – however, you only need to report it once, which is useful if you want to avoid multiple service fees.
#5. Decide Terms
Once you’ve selected which property type and area you’d like to invest in, you must determine the terms for your investment.
You must calculate the rent, fees, yearly costs, and emergency expenses to draw up a running budget, and include utilities if they are applicable. You must be aware of any extra fees and costs, as well as how much funding you need to maintain your investment.
You can consider hiring a property manager – this is especially useful if you plan to invest in multiple properties in various locations. Decide if you want a property manager before you invest so that you don’t get a nasty surprise when bills begin to come in.
Disclaimer: This is a collaborative post on behalf of TFS Properties, but then again as always, we are devoted to providing content that is supportive and valuable to the readers.