If you’re interested in getting involved with real estate investing, you have a vast number of ways to go about it. Today, one of the biggest trends in real estate investing is purchasing cheaper properties in order to make renovations and flip them for a profit. However, one of the long-standing methods of purchasing properties with the intention of renting them out to generate a steady flow of income continues to be popular. Before you embark on this type of investment, there are several rules you need to learn so you can be successful in your real estate investment venture.
Establish an Exit Strategy
Although buy and hold real estate investing is intended to be used for longer term gains, it’s still important to have an exit strategy in mind, even before you begin buying property. By creating a plan for how or when you are likely to exit this type of investment, you can clearly get an idea of whether this type of investment is the right choice for you. It also ensures you have done your research and are fully prepared for your duties as a landlord. Be sure to consider what you will do if the housing market experiences another crash or what you intend to do if the property isn’t turning a profit as expected.
Utilize Your IRA
While most people try to get a traditional mortgage loan in order to fund their buy and hold real estate investments, this may not be your wisest choice. If you have a self-directed IRA, you are able to choose the ways your money is invested, including buying investment properties. You may be able to purchase residential or commercial property, as well as undeveloped land, as part of your investment portfolio through this type of IRA. However, it’s important to proceed carefully because you could incur tax penalties that aren’t worth the investments you’re trying to make. Keep in mind you won’t be able to live in the property if you take this path and you must have a balance in your IRA that can also cover future expenses, such as repairs and taxes. You also cannot give yourself a salary for managing the property yourself.
Evaluate the Property’s Potential
Just as you would carefully consider all factors before buying a home to live in with your family, it’s important to put the same amount of consideration into buying rental properties. After all, you don’t want to invest money into a property that is in a poor location that is unable to perform in a way that not only gets back the money you’ve spent, but also turns a profit. When you’re purchasing commercial properties to rent out, you will need to evaluate traffic patterns and ensure the right number of people have access to that property in order to attract customers. Residential properties should be located in areas in high demand and with reasonable average rent prices in order to be successful. These are all factors any lenders will also look at before they approve you for a loan.
Purchasing property as a buy and hold real estate investment can be a lucrative option, especially if you’re more focused on longer term investments. However, this isn’t a process that should be taken lightly. In fact, there are rules that should be followed and considerations to make to ensure you’re getting the best possible return on your investment.