Secrets to Starting Real Estate Investments That Experts Swear By
Those who consistently make money in real estate know the market well. They know what new developments are planned. They know about local transportation and schools. They know everything about the area where they invest.
Staying ahead of the competition in real estate investing means doing your homework. If you are new to the business, it can be daunting, but in this article, we’ll teach you six tricks the pros use to get ahead of the trends instead of chasing them.
Key Takeaways
- Consult local resources to determine which areas are hot now and will be hot in the future.
- Look for the strongest demand by seeing if home prices are rising faster in one area than in others, or if they’re higher in one place than in neighboring towns.
- New infrastructure shows that a community is growing and can be a profitable investment.
- Less-crowded areas with lower property taxes will usually have higher demand.
1. Study Local Pricing
The first things to study are the current price trends in the area.
For example, a potential investor should look to see if the price of homes is accelerating faster in one area than in others. Next, check to see if the average home price is more than in other neighboring towns. This will provide an idea of where the strongest demand is.
Over time, you will start to develop a sense of which prices are fair for certain properties and which are overheated.
Understanding pricing is key to turning a profit in real estate, says DJ Olojo, a realtor and real estate investor in Atlanta, Ga. “You make money when you buy real estate, and the market is always changing,” Olojo says. “If you overpay for a property, it will be hard to make a profit. But if you get a good deal, it will be hard not to make a profit.”
Realtors and real estate agents are a terrific source of this information, given their access to the Multiple Listing Service (MLS). The local newspaper, online real estate sites focused on the area, and the local government may have a record of recent transaction prices as well.
2. Get Involved Locally
Networking is key to success in any career, and real estate investing is no different. By getting involved in your local real estate investment community, you can make valuable connections and learn a lot about the market in your area.
“Get involved with your local real estate investor association (REIA). This is an inexpensive way to learn from local investors,” says Olojo. “Real estate is local, so learning from people operating in your market is beneficial because they will know the idiosyncrasies of your specific market. The good streets and bad streets. The good contractors and bad contractors. The good realtors and bad realtors. The good counties and the bad counties.”
3. Look for a Catalyst
One sign that an area is up-and-coming and will be desirable in the future is the development of new infrastructure. When you see roads and schools being built, it’s a sign that the community is experiencing a growth spurt, and investing in a growing community can be very profitable.
In addition, certain types of developments, like new shopping centers, may be extremely attractive to homebuyers and may help keep the tax base low.
Spotting new developments can be as easy as looking out your car window as you drive by. Telltale signs of land clearing, surveying, or the beginnings of construction in and around major roadways are pretty big tipoffs. Also, look for a widening of traffic lanes, the installation of turnaround lanes, and the erection of new traffic lights. All suggest the possibility of development to accommodate more activity.
Next, visit the town hall and speak with the road and building departments. They should be aware of any major projects slated to begin in the area, and they may even be able to provide you with a connection at the state level so you can find out if any state-owned roads or properties are slated for development as well. Real estate agents also generally have an idea of what new projects are about to be undertaken.
4. Explore Low-Tax Alternatives
If there are two towns side by side—one with high or rising property taxes and the other with low property taxes—then the one with the lower taxes will usually be more in demand.
Realtors can help you determine which areas have the best and worst tax rates. In addition, a simple call to the local tax assessor can reveal how much the town charges in taxes per $100 of a house’s value. The assessor can also let you know when the area was last evaluated by the township.
You’ll also want to know if a reassessment is set to take place in the near future, as it will likely mean that property taxes are about to go up. Beware of towns and communities that are becoming overcrowded. Signs include schools filled to capacity and perpetually gridlocked roadways. This could mean the town will have to do some major construction to accommodate the influx of people. And how do they pay for that construction? Tax dollars.
5. Check the School Rankings
Nearly every state ranks its schools by how well students in each district fare on tests in math and English. Sharp-eyed investors should look for schools that are moving up or are atop the list. These areas are often desirable to parents. Access to quality education is a big selling point for homebuyers.
There are several ways to find this information. Check your state’s board of education website. Also visit the schools yourself. Schools that rank the highest are usually quite eager to provide information.
According to Olojo, other factors to consider include population growth rates, crime rates, rental rates, the number of properties for sale in the area, and the length of time that homes stay on the market.
6. Watch the Outskirts
If the properties in a major city or town have become overpriced, the areas on the fringes most likely will soon be in demand. Areas close to major bus and rail transportation routes are even more desirable. Nearly any area that is about to install a major train stop or new major bus route will see its proverbial stock go up in value.
To find out what’s planned, check with the local railroad or bus company to see if they will be expanding service in the area. The local town hall or planning department will also have this information.
How Can I Start Investing in Real Estate With $1,000?
What If I’m New to Real Estate Investing?
How Much Can I Afford to Pay for a Home?
Investopedia’s Mortgage Calculator will help you estimate your monthly payment. Your payment will depend on your home price, down payment, loan term, property taxes, homeowner’s insurance, and interest rate on the loan, which is highly dependent on your credit score.
What If I’m a First-Time Homebuyer?
Buying a home for the first time can be challenging and overwhelming, whether it’s an investment property or a primary residence. Our First-Time Homebuyer’s Guide provides a rundown of what you need to consider before you buy and what you can expect from the buying process, plus tips to make life easier after you buy your first home.
The Bottom Line
It pays to do your homework and to tap local resources to determine which areas are hot now and, more importantly, which areas will be hot in the future. Much of the information is readily available; you just have to be willing to do the legwork.
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