Investing in real estate offers a lot of opportunities. However, many people oversimplify the process in their minds. An investment property can transition from something that makes money to something that costs money fairly quickly if you aren’t careful. It is important to make a plan and do your research before you get started.
Begin by Understanding Your Finances
The first step in the process is to understand your finances. You need to plan what you have for a down payment, how much you can spend, and whether you will take a mortgage. You need enough cash for the purchase, as well as any unexpected expenses that may come up. Consider the following:
- Maintenance expenses, including air conditioners, plumbing, roof leaks, and more.
- Months when it isn’t rented out
- Annoying tenants
- Required permits
- Weather
- And more
Make sure that you plan for anything that might go wrong so that you are prepared if it does.
Understand Different Types of Investment Properties
When you invest in real estate, you can choose commercial or residential properties. Commercial properties are rented to businesses, while residential ones are rented to people. Each type has subcategories, including the following:
- Commercial Properties:
- Office space: space for people and companies to use as offices
- Warehouse space: space used for storage, shipping, and logistics
- Retail space: for retail businesses
- Mixed use spaces: mix of different types of space
You need to know how the property is zoned before you buy it and understand that the zoning can change. If a property is zoned for mixed use, it could have retail, office, and residential in the same building. This provides flexibility.
- Residential Properties:
- Single family homes: one family lives in the home
- Multi family homes: more than one separate living space
- Apartment building: building with a number of apartments
- Condominium: building with shared spaces and amenities. You normally own the interior of your unit.
- Townhouses: similar to a condo and to a single family home. Owners don’t own land, only the building.
If the residential property has a homeowner’s association, you may need to follow rules concerning renting your property. If you want to rent the residential property, make sure that you understand any restrictions or regulations.