Investing in real estate can be a lucrative way to grow your wealth, but the wrong investment can also cause you to lose thousands of dollars. In most cases, real estate investing goes well, but there are issues that crop up from time to time that may cause you to sell or walk away from a property. In addition, niche investments like student housing can carry their own special risks and rewards, which is why firms like Nelson Partners specialize in it. Here are some tips on avoiding those problems and ensuring that your investment is a wise one.
1) Location, Location, Location
The old adage is true – the location of your investment property is one of the most important factors to consider. Look for areas that are growing or have the potential for growth, and avoid areas that are in decline. You want to make sure that you can get a good tenant for your property, and having a bad neighborhood will make it difficult to do so. On the other hand, you also don’t want to invest in an area that is growing too quickly because prices may rise faster than you can expect, resulting in high vacancy rates.
2) Know Your Tenant
Having a great location is all well and good, but if you cannot get the right kind of tenants, you won’t be able to keep up with the maintenance costs or fill your vacancies. So study your market carefully before investing. Look at surrounding properties that are already rented out. What types of people live there? Are they young professionals who have no children? Families with children? This will help you choose which type of rental unit to buy.
3) Know the Law
The relationship between landlords and tenants can be a tenuous one, so it’s important to know your rights as well as what your responsibilities are when you invest in real estate. For example, if you don’t know if it is legal to raise the rent of your apartment by $50 per month, then how do you know that you can evict a tenant who refuses to pay? Be sure that you check into all local laws before signing a contract or hiring someone because ignorance of the law is no excuse in an argument with a former landlord or tenant if things go sour.
4) Leverage Your Money
You may have heard this advice elsewhere, but using other people’s money (OPM) is one of the smartest things that you can do when it comes to investing. When you borrow money, you are using someone else’s funds to increase your own potential profits. However, this does come with a certain amount of risk, so be sure that you are comfortable with the potential for loss before borrowing money from a friend or family member.
5) Consider Specialty Properties
Not all real estate investments are created equal. Some properties – like student housing – come with their own set of risks and rewards. If you are interested in a niche investment, then be sure to do your research first. What are the special considerations that need to be taken into account? For example, what is the average vacancy rate in the area? How much do similar properties rent for in the area? What are the odds that the property will be able to generate a good return on investment?