So, you’re ready to start investing? You’ve probably saved some money, and you’re well aware that you’re better off investing that capital than letting it sit in a bank account. But the struggle is figuring out the right strategy for you.

How can you be sure you’re making a smart investment? What should you know about the industry before diving in? These are questions many new investors ask themselves about any venture they’re considering.

Many of us have heard that you can’t go wrong investing in real estate. But you might wonder if that’s true and why that is. Is it really a wise bet for your money? We will break down why real estate investment is considered one of the best ways to build generational wealth, how you can get started in buying property, and what you’ll need to plan for to be successful.

Reasons to Invest in Real Estate

When you talk with someone who has a successful investment portfolio, there’s a high chance at least part of their portfolio is made up of real estate assets. There are several good reasons for that.

What draws most people to real estate as an investment is the appreciation of property values. There are economic periods where they have dipped, but if you look at values over the long-term, there’s a strong upward trend. That’s primarily because real estate is a physical asset and people always need it, whether it’s housing or commercial space.

An investment property also provides a cash flow to you. Even if you have a mortgage on it, you’re likely to be generating a profit after making your loan payment and covering other expenses. This is in comparison to other investment assets that don’t provide a steady, immediate cash flow, like buying stocks or investing in start-up companies.

In addition to appreciation values and an immediate cash flow, real estate investors can also often utilize tax deductions for operating expenses related to managing the property.

How to Find the Right Investment Property

After researching how other people have created successful real estate portfolios, you’re ready to take the next step.

First, you’ll need to identify how you’ll be utilizing the property. Will you be renting the home out? Will it be a short-term vacation rental? This will have a huge impact on the type of home and location where you invest.

After you’ve decided how you’ll use the property, you can narrow down the location. Hiring a real estate agent with investment property experience is a great way to both find the right property and negotiate a fair price.

You’ll also want to do lots of research along the way.

  • If you’ll be renting the house out, you can use this list of the top 10 features that make for a successful rental property.
  • If you’re looking to establish a short-term rental, through services like Airbnb and Vrbo, some of the same features that make for a great residential rental will still hold true. Most important than any of those is the location where your short-term rental will be, because you’ll want a steady stream of bookings.

Mortgage Options for Investment Properties

Next up is figuring out how you’ll fund your investment purchase. Buying a property outright with cash is the easiest way to get the transaction closed fast. But it’s not your only option.

Most lenders offer programs for investors, and some even specialize in programs for first-time investors. If you’re going to take out a mortgage to purchase your investment property, you’ll want to know how much money you need for your down payment.

You’ll also need an estimate of your monthly mortgage payment so that you can crunch the numbers and make sure you’re able to cover the mortgage with your rental revenue.

Working with an experienced loan officer early on will ensure you’ve got the estimates you need to prepare realistic calculations about your cash flow. This, in turn, will allow you to determine a price range for your investment property that you can afford and that will set you up for success.

Different Cash Flow Strategies

Around the same time that you’re exploring and settling on financing options, you’ll also firm up your cash flow strategy and estimates.

There are many ways you’ll be able to utilize your investment property. We’ve already covered two common use cases, which are renting your property out to a tenant or using it as a short-term vacation rental. With each, you’ll want to develop a projected budget as you work through buying your investment property.

  • If you’re planning to use your property as a short-term vacation rental, you’ll want to research your competition in the area, particularly what they’re charging. Then you should develop a realistic estimate of what your rates and expenses will be.
  • If you’re renting the property out to tenants, you’ll also need to conduct market research to set your monthly rent. You’ll also need to factor in legal fees for lease agreements, and/or property management costs.

Working through the specifics of your cash flow strategy will make sure you have realistic expectations, are fully prepared, and ultimately setup for success for your first adventure in real estate investing.

Investing in real estate can be both exciting and intimidating. With our guide on getting started, you’re in great shape to start planning for your first real estate investment. Get a free consultation with our team, who will help you find the right loan program. Our loan officers are experts when it comes to real estate investment programs, so you’ll be in good hands with a partner who can help make your first investment a success.

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