Starting a career in real estate investing can be daunting for the most experienced investor, not just millennials. Different states and regions have separate laws regarding taxation and ownership of property. Knowing what property to purchase can be a chore as it is a long-term investment and will need careful consideration. We have put together five tips to help a young investor start planning for a real estate investing career.
Keep Detailed Financial Records
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The hardest part of real estate investing for any young person is having good financial records. A mortgage lender will use your credit score and look at your financial history, and they want to see a good record of paying bills on time. Keeping your credit score above 650 will help when looking for pre-approval on a loan. You can check your credit score online and discover tips on how best to improve your current score. Having a low debt to income ratio is crucial to avoid paying mortgage insurance so paying off any credit or store cards before applying will help.
Determine How Much You Can Borrow
Most lenders will require a 20% deposit on a home loan and paying less will incur additional insurance charges and higher interest rates. For young investors looking to purchase their first property, you should look at apartments and houses well below your budget, never stretch your finances to buy. Additionally, there are free tools online that help you work out how much you can borrow, and you can also change deposit amounts and length of the loan to see different options available. It is a good financial practice to make sure you have an emergency fund in place that can cover six months of repayments or maintenance.
Get an Investment Strategy
The real estate market is expanding currently, and this has brought about many options for shrewd investors and those unable to purchase on their own. The main options are, that you can buy a property on your own or join a fund with many investors, and there are benefits and negatives to both. Purchasing on your own gives total freedom on where you buy and who you want to cater to, young family, students, or city workers. When purchasing in a fund the director will determine what property is purchased giving you no say, but they are smart investors and likely to make good profits for their fund members.
Choosing the Right Property
For a young investor looking to purchase their first property, the market can seem a little daunting. Knowing where and what to buy is something that needs serious consideration and as many details on possible locations as possible. Buying studio apartments for students can lead to good returns but does take more work as you need to find new tenants regularly. Young families are a great target market as they usually stay in the same place for years and live a quiet family life that causes you less hassle than many students. It can be expensive, but a small home for a family may yield better results so if you need to wait another year to save, do it. Do not buy the only property you can afford. It is better to wait for the right deal.
Every young investor starting should be seeking advice from anyone they know who has invested previously. There is a wealth of information online, but the best advice usually is face to face from someone you trust who has had the pitfalls and good times of investing. Through talking with mortgage brokers and investors, you will get to know what areas are seeing good growth and what locations you should avoid. Many states and governments have websites with real estate advice for new buyers and experienced investors, keeping up to date with what the rules and taxes will be is vital to having a successful career.
There is never a better time for a young investor to enter the real estate market. We have mentioned previously about not buying if the deal is not right. If the deal is good, you should act fast and start earning a passive income with little ongoing work required once you have a good tenant. There are many options available for those with limited budgets to own a piece of property and get your foot on the ladder. For those looking to enter the market in the coming years, you should start saving and creating a good financial history to make purchasing property easier.