If you are looking to invest in real estate, in order to generate income or a profit, you should consider the following three points:
Research Programs within Your Area of Interest for Financing
It is ideal, when contemplating investing, that you keep your debt to a minimum. If you are looking to purchase a home, the best time to purchase is now! As the country recovers from the housing market crash, there are many homes that are available at a low cost. This enables many first-time home buyers to purchase premium properties, at a price that is lower than what the properties sold for in previous years. In some areas of the country, in order to combat the surplus of vacant properties, there are programs available that will offer grants to rehab vacant properties. This allows the buyer to fix up the house with no out of pocket cost. Many premium properties are also available in tax foreclosure sales, and some in state and city wide auctions, where the buyer can purchase homes for as little as an initial down payment. Do research in the area in which you wish to purchase properties, to see if there are any government programs and/or discounted real estate available for first-time home buyers.
Form a Legal Entity
When planning to purchase multiple properties, you should not purchase the properties in your own name. The first step is to form some type of legal entity—whether it’s a limited liability corporation or limited liability partnership– in order to hold your real estate investments. Forming this legal entity will provide protection from liability, financial or otherwise, that will prevent other parties from attacking your personal assets. As an investor, your least concern should be whether some unforeseen lawsuit will deplete your 401K. In addition, formations of certain corporations may have better tax advantages over others. This includes an advantage over personal tax write-offs, should you decide to purchase the properties in your name only. You should consult an attorney as to what type of legal entity will be the best for your venture.
Location, Location, Location
If you ever watched any television show dealing in real estate, this is the phrase that gets overused. Although cliché, it contains the biggest nugget of truth. When deciding to purchase property, you must assess whether the property is: 1) a location that is likely to attract tenants or buyers; and 2) a location where maintenance and potential cash flow of a property will be a net positive. The biggest mistake, when purchasing real estate, is to over-estimate the potential of a property based on emotions. Yes, you love the property, but will you generate a profit or income from it? The property must be situated in a location that people desire to live. It also must be in an area, in which, if you obligated to maintain the property yourself, your pockets can handle the cost. That means you are able to still pay property and other taxes on the property without tenants. You also need to have the money to maintain the property, during the times when the property is empty. Choosing the right location will ensure that you always have a market available for your property.