Real Estate Investing 101 – How To Avoid Buying Overpriced Houses
One of the mistakes you can make in real estate investing is buying overpriced houses. When you buy lesser-priced items like shoes, cars, and a service you can get a refund in less than 24 hours. It’s not easy to get a refund when you buy overpriced houses. Why? It’s difficult to get your purchase money for a house because it takes time and expense to complete a real estate transaction. To avoid falling into the trap of buying an overpriced house that may cost you financial pain, you must know how to spot an overpriced home before you start looking to purchase property. Here are the search tools you need: Outline Your Real Estate Investing Objective You have to be clear about why you want to invest in a real estate market before you buy a property Do you plan to buy and hold residential property? Do you plan to buy and flip? Why? Because your real estate investing goals will affect…. how you are going to buy property. For example, a buy and hold investor’s top priority is buying cash flow-positive properties that can be rented easily. When you take the time to clarify why you are investing, you’ll not fall into the trap of buying the wrong type of property. Make a Budget and Stick To It You need to draw a budget for how much you can afford to pay for a property. Once you have a budget, make sure you stick to it, so you don’t overstretch your finances. Know Your Market Cold I think it’s worth mentioning that you must do your market research before investing in your potential real estate market. When you do your research, you’ll know if a market is hot, or in a downturn, the neighborhoods, property taxes, and any new developments that may influence the real estate market. Assess the Rental Market You want to know that people are renting in the real estate market you intend to invest. You don’t want to invest in a market where there is no demand for rentals. The other thing you want to know about the rental market is how affordable are the rents? What’s the average number of days it takes to rent a property? Use the Gross Rental Multiplier as Your Buyer’s Guide The value of an investment property depends on the rental income it can fetch. Anyone who tells you otherwise is trying to deceive you. The gross rent multiplier is the tool you can use to assess the actual value of a potential value. The formula for calculating the GRM is the rent price per month times 12 months. For example, a 3 bed 2 bath house that rents for $1,500 per month has a GRM value of $18,000 ($1500 x 12). Assuming the same house list at $200,000 for sale. This means it’s selling at 11 times its GRM. As a guide, you want to buy a house at a GRM lower than ten times the value. The lower the value of the GRM, the higher the chance of buying right. Estimate the Dollar Per Square Foot The dollar per square foot of a property is a useful measure of whether you are paying a fair market price for a property. It’s easy to estimate the price per square foot in your local real estate market. Just look up the zip code on websites like trulia.com, and Zillow.com, and then download the average price per square foot. For example, if a property is 1,500 sq. ft. and is selling for $300,000, this means its price per square foot is $200. You should next find out the local real estate market’s average dollar per square foot and see if it’s below or above market value. You should try to buy at a below market value for a house. Final Thoughts The bottom line is you can avoid overpriced houses when you have the necessary tools to assess the property values in a real estate market…you intend to invest. When you use these tools I have listed above…you are less likely to go wrong. Useful Resources www.rentometer.com for rent value www.redfin.com for local real estate values www.biggerpockets.com is the largest social networking site for real estate investors you’ll find tons of useful contact, tools and network with investors in your area www.trulia.com for rental prices, house prices and housing trends www.bankrate.com for finding mortgage rates www.zillow.com for property listings www.hud.gov the housing and urban development department publishes a guide to the rental values in a local real estate market. www.fanniemae.com and Freddie mac provide affordable loans to homeowners and investors www.freddiemac.com
Real Estate Investing 101 – Why You need Rental Demand Before Investing In Real Estate
Real estate investing is one of the proven paths to financial independence. Most people start investing in real estate by buying single-family residential properties. Anyone can start investing in real estate… provided you have a good credit score …and a commitment to learn. The easiest way to start investing in real estate is by starting with investing in single-family homes. Investing in single family home is a low risk way to learn the skills for investing in real estate. There are 7 tips to invest in real estate and become wealthy. One of the tips is that you should invest for value and avoid speculation. That is why one of your first step to find value in buying single family homes is – look at the demand for renting in your chosen market. Why rental demand important in real estate investing Rental demand is important because the strength of the rental market measure how the possibility of making money in rental real estate market. I want you to imagine that the single-family residential home you are buying is a business venture. The product your business offers is accommodation. Which means your customers are offering you money in exchange for a roof over their head. The more customers you have to rent your home the less likely that you’ll have vacancies on your property. On the flip side when you have less demand for renting your property… you are going to have more vacancies on the property and earn less money Cash flow is what makes a business grow. When a business is not making enough money then it’s going to fold up. That is why you need to do proper research on the rental demand for single-family properties in your chosen real estate market You also need to know the rents to find out if the properties you are buying will cash flow. And to gauge if the property market is in a bubble…or ripe for investing How do you assess rental demand? You can assess rental demand by checking the classified ad in the local area’s newspaper. You can also check online real estate websites Some popular real estate websites in the United States are: Trulia.com Redfin.com Homes.com Homes.com and Realtor.com have a comprehensive database of rent prices and homes for sale. There are other smaller sites you can check out. Real estate agents are also important for checking the true market value. In fact they are valuable sources of getting an accurate record of rental values in your chosen area. In the United Kingdom you can find rents for many areas on rightmove.co.uk and zoopla.co.uk Local real estate investing clubs are also useful resource for finding out more about rental demand in an area. Real estate investing clubs and landlord associations are important for networking, finding local teams and keeping up to date The key to success in doing your research is looking at getting an average rental price for the type of single-family property price you intend to buy. Why? Because when it comes to buying single-family properties you need to compare apple to apple. Which means that when you are doing your analysis… you should make the parameters you are assessing uniform For example, you should assess the rents for only 3 bed 2 baths single-family homes that are 1500 square foot to 1800 square foot. You should not compare the rent of 4 bed 3 baths Single family homes to 3 bed 2 bath properties… do you get it? Knowing your rental demands means…knowing how much you can afford to pay This brings me to a final point on rental demand: you need the average rental price to do your quick analysis of future profitability For example, if you find out that the average rent for the single-family homes is $1500 … this means your gross rental multiplier is $18000. Which means you know have benchmark to measure how expensive or affordable the properties in an area By knowing the gross rent multiplier…you’ll be able to separate overpriced properties from the bargain properties. Now you know why you need to know the rents in an area… What are you waiting for? Go buy a property and get wealthy!