If you’re just beginning to invest in real estate, it’s a good idea to familiarize yourself with the fundamentals before getting your advanced degree. Here are 5 basic tips to get started investing in real estate.
1) Location matters
You may want to invest in the worst house on the best street because it gives you an opportunity to build equity. Invest some money to fix it up and sell it to someone else who wants a ready-to-move-in house in a fabulous location.
2) Wholesale properties
Avoid paying “full price” for properties. Instead, look for so-called wholesale properties that are offered at a steep discount. Sure, they’ll probably need some work. Run the numbers and see if the investment in rehab is worth the ultimate selling price.
You can easily invest $20,000 in a property and add twice that much to the selling price.
3) Tax Benefits
Uncle Sam offers significant tax benefits to real estate investors, including the depreciation write-off. When you buy an investment property that includes a building, you get to write off the depreciation of that building as a tax deduction.
Keep in mind that the IRS views your real estate investment efforts as a business so you also get to claim the “necessary and ordinary“ deductions that business owners take, including mortgage interest, insurance, and maintenance expenses. Remember to consult your tax advisor about specifics.
4) Check your credit score
Banks aren’t going to loan money to you for a property that’s not your primary residence as readily as they’ll loan it to you for your own home. That’s why your credit has to be spectacular. If you have problems on your credit report that are mistakes, get those resolved as quickly as possible.
5) The 1% rule
The 1% rule simply states that an income property must produce 1% of the price you pay for it every month. For example, if you’re looking at buying a property for $150,000, the monthly rental income should be 150,000 x 1% = $1,500.
Article courtesy of HuffingtonPost.com