Buying real estate can be a challenging experience even for a seasoned investor. For a first-time buyer, especially one who is looking at investment potentials in a piece of property they want to purchase, it is important to know what you want and how to get it. While there can be a lot of steps, from being a prospect to becoming an owner of real estate, it doesn’t have to be intimidating.
Why Should You Buy or Sell Real Estate?
Reasons For Buying
- Owning a permanent residence
- Taking advantage of financial/tax benefits
- Eliminating endlessly rising costs of renting
- Using the property as an investment
Buying real estate can involve one or more of these ideas when someone is purchasing a property, as none of them are mutually exclusive. However, some buyers of real estate for investment do not share the same long-term goals as those who buy real estate to obtain a permanent residence for themselves and their family.
A homeowner who expects to live in a house for a decade or more may not have much concern for the current market value of their home. Investors on the other hand may approach things with a more focused, shorter timeframe in mind for holding onto the property.
In fact, buying real estate as an investment can involve “flipping”, or “house flipping”, where an investor buys a house for the short-term goal of renovating the property and then reselling it for a profit.
The purpose of the renovation is to increase the marketability of the home in a short period of time, so enabling the quick turn-around of the real estate for what the investor hopes is more money than they paid for it (and the renovation).
Is Buying Real Estate (and Selling it) a Good Investment?
If a buyer does their homework and seeks proper assistance with the process, buying real estate and selling, it can definitely be a good, or even a great investment.
Naturally, there are variables to consider in determining whether any particular real estate opportunity is going to be right for a particular investor.
Variable to Consider:
- Local market conditions—hot or cold
- Affordability—is a property in your budget
- Renovation costs—is it worth it
- Scale—can you realistically manage the project
The first of these is maybe the most important.
You need to research and carefully consider local market conditions. How fast are homes being sold in your area? What kind of homes are selling, and at what price? It isn’t going to make much sense to spend a lot of time and money renovating a house, even to the point of increasing its value, if home sales are so sluggish in your area you can’t move the property in the timeframe you need to.
On the other hand, if market conditions are hot, and properties are moving quickly in your area, you may not need to spend as much on renovation to flip the real estate for the profit you desire.
Along with affordability—can you finance the purchase and improvement of the real estate in question?—the scale of the project should be an important consideration for any investor. Especially if you are planning to DIY the renovation, will you be able to handle everything properly, and especially in whatever timeframe you have set for finishing the project and selling the property? You will want to consult with experts, like real estate agents and contractors, to help you estimate whether or not you have taken on a bigger project than you can manage.
First-time real estate investors often make the mistake of seriously underestimating the time and cost involved in fixing up a property, often to the point where its improved value is no longer profitable to the original buyer. This makes it essential to get some expert advice when first starting out.
How Do You Do It?
Let’s assume you have done your research, gotten good help from your real estate agent, and have purchased the property you think is the right one to flip for profit. Then what? How do you take this investment and make it pay off?
The main cost after the purchase of the property itself will be the renovation process. This should only be attempted after appropriate research concerning what you can afford to have done professionally and training in the parts of the renovation you may tackle as DIY projects.
General Renovations That Can Improve the Value of Your Investment Property:
- Uncovering/Refinishing floors
- Replace carpeting
- Laying ceramic tiles
- Installing ceiling fans
- Painting bedrooms and bathrooms
These are all improvements an investor can do themselves, potentially greatly decreasing the cost of renovations. Saying that is easy. Getting the job done right as a DIY project demands the investor commit to learning the skills required so an improvement does not become a money-losing disaster.
These renovations can even help an investor take an older home from mediocre to desirable; and more than this, even to being “hot.” Getting it to this point means that it doesn’t just sit unsold, but instead makes you the profit you were looking for in a short period of time.
As we have seen, even the basics of buying real estate, especially for investment, can present anyone with a daunting list of variables to consider. Once again, it is important for a first-time real estate investor to spend the time to become educated about the different steps and demands involved in what can be a lengthy, expensive, and complicated process.
However, this investment in education and training, and locating qualified help—for example choosing the right real estate agent—can greatly smooth out the process of locating, buying, and selling a property.
As with most things in life, the first time is likely to be the most challenging, since the learning curve will be the greatest at this point. This is particularly true when an investor decides to DIY all or portions of a home renovation. But having gained this knowledge and experience, an investor should have a much easier job on their way to profitably buying real estate.