If you’re just starting out with real estate investing, there’s a lot to know.
You could feel overwhelmed with all the different articles out there trying to tell you what is most important, what you should learn first and a half-dozen other assertions.
But when you distill it down to the most basic components, there is a list of about five things you should know or consider before you invest in real estate.
Because they all ultimately impact your bottom line, knowing these five elements can be crucial to determining your success as a real estate investor and how well you accomplish your goals.
Without further ado, let’s explore these tips:
1. Be Aware of Tax Laws This is one of the biggest things that you should know about real estate investing. Where you are and where you’re investing matters, as there are state, county and city laws that dictate local taxes on properties. There may be differences in how the taxes are calculated based on the type of property.
Additionally, you should be aware of federal and state taxes on income from rental properties. Learn the laws, discover if there is anything you can do to reduce your responsibility, and evaluate how they will impact your financial goals for the property. It can mean the difference between a positive cash flow and a negative one.
2. Compare Property Values and Rents This is the next biggest thing that will determine how well your real estate investment will pay off. You want to make sure that the income you receive will be worth it. You don’t want to invest too much into a property just to find out that the local market won’t support the rent you’d have to charge in order to make the income you expect.
Look at the prices of similar properties being sold nearby, as well as the cost of comparable rentals in the area. Try to seek out the highs and lows, as well as the average for sales prices and typical rents. Then use this information to help inform your property investment strategy, as well as how much to charge for rent.