If you’re a homeowner with an itch for real estate investing, take a deep breath. One of the biggest mistakes you can make is to jump right into buying an investment property without knowing the ins and outs of what that really means.
Real estate investment has become increasingly popular over the years thanks to the growing interest in home renovations and “flipping” — you probably have Joanna Gaines to thank for that!
Whatever the case, real estate investment can, indeed, be fun, rewarding, and provide you with a sizable profit when you know what you’re doing. With that in mind, let’s go over some tips you can use to get started with your first investment property.
Decide Which Type of Property Suits Your Needs
The first thing you need to decide is what kind of property you’re looking to invest in. You might be buying a second home for yourself and your family or purchasing a rental property or a commercial real estate property.
There are pros and cons to each. Obviously, if you have your heart set on a second home, that’s a pretty easy decision to make. You can renovate to your heart’s desire and create a space that fits your sense of style and personality (with the added bonus that you can rent it out casually from time to time!).
But, if you’re torn between a rental property or commercial property, there are some things to keep in mind.
Commercial Property Investing: Insurance, Zoning, and Safety
Commercial real estate is a property that will be used for business purposes. If you know that’s where your heart is, you’ll also need to know which type of insurance will cover your property. If you invest in a commercial building, you’ll need business property insurance. This will help to protect a variety of things on, in, and around the building, including:
- Personal items
- Important documents
Before you decide on any property, make sure you’re not investing in a black hole that’s going to end up costing you thousands of dollars more than you expected. If you’re interested in a place, hire a building inspector to run a few tests, like mold and asbestos detection, and an environmental assessment.
Another key step in commercial leasing you need to do is check zoning laws. If you end up investing in a commercial building that isn’t allowed in your zoning area, you could be hit with huge fines. Considering what type of business you’re opening in a specific area will also make it easier to find tenants.
For example, you’re probably not going to have potential tenants clamoring to rent your ice cream parlor in a rural, practically unpopulated area. You need to think about how you’re going to renovate a place as well as how the location of that place will impact your success.
Preparing a Rental Property for Renovations
Renovations on a rental property can make all the difference in how successful your investment will be. Plus, it can be a lot of fun to see a property come to life and turn into something totally new and different.
There are a few tips you should keep in mind before you get started with purchasing a “fixer-upper” so you’re not left with a huge headache:
- Buy low:Even if you think a property is going to end up with a high price tag after you renovate it, don’t be tempted to buy something already over your budget.
- Cover your expenses:Make sure the monthly rental fees will cover all of the expenses needed.
- Have a cushion:Unfortunately, surprises happen. If a pipe bursts, an appliance breaks, or there are electrical issues, that burden will be on you to fix it. Make sure you have money saved up for such events so you’re not caught off guard.
- Be careful who you hire: You’re probably going to hire a crew of professionals if you’re doing renovations. This isn’t an area where you should skimp to save money. Do your research and hire workers with a good track record and expertise in areas that are important to you.
- Protect yourself from future problems:Invest in things like fire-resistant materials. Reinforce doors and windows. Check out the roof before you get started. Protecting yourself early on and taking note of some otherwise unplanned rebuilding needs will make the renovation process easier.
Renovation Tips and the “Final Reveal”
Once you’ve made your renovation plans and prepared yourself for the unexpected, it’s time to actually put that plan into place. Renovating and landscaping can add a lot of value to your property. You don’t need to be an expert to get started; you just need to be aware of some of the most common areas of the home that can add value (and a lot of character). The most popular areas that usually benefit from home improvement include kitchen layouts, flooring, plumbing, electricity, and refurbishing walls. Even a fresh coat of paint on the outside of the house can go a long way.
Kitchen renovation is hugely important. After all, it’s the heart of any home, and it’s a place where people want to feel comfortable — whether they’ll be making home-cooked meals every night or enjoying takeout. A functional kitchen can really help with your return on investment right away. It’s followed closely by bathroom renovations. If you can turn a bathroom into a comforting, spa-like experience for someone, they’ll be happy to sign a lease.
Don’t be afraid to buy into lasting, effective trends. For instance, the green movement is bigger than ever before. Many people across the country are interested in more environmentally-friendly homes and commercial buildings. One way to attract potential tenants is to get your property LEED certified. To do this, you have to consider which materials to use in your renovation,and how the upgrades will have an impact on the environment. LEED certification requires that a home use 20-30% less energy than traditional buildings.
Your renovation plans should be a healthy mix of your own personal taste and what you think would attract potential tenants. Once you get started, you might get the “flipping bug” and turn into a full-blown investor!
Yes, real estate investment can be a risk, just like any other type of investment, but it can also be a lot of fun. It’s a great way to make your mark locally or even across the country with your properties.
SmartReno can help you find the right contractor for your Interior renovation project