When done correctly, real estate investment is one of the most rewarding ways in which you can invest your money. Buying your first property might seem intimidating, but if you follow the below advice, you should be able to find, purchase and create an investment that provides additional income for you and your family. In our latest post, we offer 5 steps or tips to buying your first investment property in Southern California or the surrounding areas!
A quote attributed to Andrew Carnegie states that “90% of all millionaires become so through owning real estate.” While things might have changed a bit since the 1830’s when Mr. Carnegie stated it, the same philosophy still applies today. Basically, owning investment property is a great way to make money. However, you must make smart decisions about where to put your money.
You shouldn’t ever dive right in and purchase the first property you see. Look at many properties and really get an idea of what’s out there for you. Learn as much as possible about the local market, real estate trends, and what is going on with other properties in the area. The more you can learn, the better off you will be when buying your first investment property.
Location, Location, Location
It isn’t just about the property you are buying, it’s about where you’re buying it. The same house will fetch different rents depending on where it’s located. Really get to know the area you want to invest in. It isn’t only about if you like it or want to live there, but more about what the numbers are showing. How fast is the area growing? Are rents rising faster than in other parts of the state? Spend time learning about the market, local trends and what other investors are doing locally. You can never know “too much,” so spend as much time as possible learning about what is going on around you. Look at as many properties as possible so you can find the best property for your needs.
Just like choosing the neighborhood based on market statistics, you should also look at the property the same way. It’s not about buying the house you would want to live in, but rather the property that has the greatest potential for high returns. People use many different formulas to determine if a property is a good investment. A simple one to consider is the 1% rule which states that you should bring in 1% of the properties value each month. If you paid $150,000 for the property, you should aim to collect at least $1,500 in rent each month for the home.
Be Mindful of Your Math
Of course, your calculations need to go much further than the 1% rule stated above. You should run a full cash-flow analysis to determine if a Southern California property will be a good investment. Determining your exact ROI can be a tricky process. Determining a “good” ROI percentage can be tricky too is it varies widely between markets and property types. Many investors will say to aim for at least a 10% return, but this can be different depending on your situation.
Network & Grow
The best advice you will get is from people who have been in your shoes. Local market experts and real estate advisors can help you make smart decisions when buying your first investment property. Network with seasoned investors through local groups both in person and online. Keep adding to what you know and you will increase your opportunities exponentially.