Choose a market. Residential properties are the preferred first time real estate investment because the process is simple and the costs are low in comparison to commercial properties. Within the residential market, there are several options: single-family homes, condominiums, row houses/townhouses, and small multifamily properties. Each has their pros and cons, and these can differ depending on location.
Establish a strategy. There are many ways to approach real estate investing: flipping, long term holding, wholesaling, and the list continues. Investing in the best option for you depends on a number of factors. Do some research on the market to determine how long the average listing takes to sell, the average price per square foot in various neighborhoods, average selling price change over the past few years, essentially as much information as possible. You should also consider your time and money commitment to investing and whether or not you plan to reside in the properties or not. Accounting for all these factors will allow you to make an informed, strategic decision.
Consider which strategy is best for YOU. Wholesaling and flipping are time intensive and active methods of real estate investing. Rehabbing and flipping involve a lot of work on the part of the investor in terms of research, securing loans, taking on risk and making repairs. Wholesaling doesn’t involve loans or nearly as much personal risk, but does require a lot of time devoted to research, networking, and deal making. For the more passive investor, holding a property long term is arguably the best choice because it is simple and has a high potential ROI.
Choose a property. When choosing a property, a primary concern is to remain within budget. Overextending yourself on a higher value property in an attempt to get a higher return could come back to bite you if the property doesn’t sell quickly. Try to avoid getting emotionally influenced when it comes to choosing a property. Ask yourself: Is this project feasible or a pipe dream? Make sure to run the numbers, and consider hiring a part time advisor to do the grunt work for you if you aren’t sure about your accuracy or don’t have the time. The money spent on making sure the numbers work will be worth it so you know that your investment won’t turn out to be an expense (and a headache).