What to Know Before Investing in Real Estate

Learn the Basics of Real Estate Investing Before Buying Your First Property

Couple looking at display of advertisements in estate agent window
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Though some people have made quick riches from real estate without much knowledge about investing, others do their homework before committing their finances to the undertaking. Real estate can be profitable when people have the knowledge to make wise investments.

Property Evaluations: Consider Goals and the Math

Consider the time it takes to find the right property in which to invest. Then, learn evaluation techniques to determine the suitability of properties for your investment portfolio. Typically, prospective investors visit the properties, research neighborhoods and pay close attention to the data provided in comparative market analyses (CMA). Finally, get the calculation tools necessary to compare properties and determine their profit potential.  

Understand the Ways to Profit From Real Estate Investment
Cash flow is an important factor when it comes to selecting real estate investments, but there are other benefits to owning real estate that can influence the properties you choose. Typically, investors weigh the amount of profit they'll earn from fixing up investment properties and selling them ​– known as flipping ​– versus renting them out. They also weigh their annual income against the properties' inherent decreasing values to determine how much they owe in taxes.


Know the Pitfalls of Leverage
Buying property with little or no down payment is an appealing prospect, but there are major pitfalls to this strategy. Put simply, leverage is cash that the investor does not have on hand, but has access to, to acquire an asset. Mortgages and home equity loans are ways investors can acquire investment properties with little or no cash. Some real estate investors use non-bank financing as leverage to buy property. Though leverage can increase the amount of property an investor can purchase – for example, leverage might help an investor buy two properties instead of one – savvy investors don't use it without understanding the risks.

Mortgage: A Major Factor in Profitability
Understanding the types of mortgages available and the benefits of each as well as the risks is critical to your real estate investment success. Investors typically must have 20 percent of a property's sale price to qualify for an investor mortgage. Investors should shop around to find mortgages that offer favorable interest rates and proceed with caution when it comes to zero down, adjustable rate and balloon investment mortgage types. Learn about your ​many options.

Should You Be a Landlord?

Assess your skills and temperament to decide if you're cut out to be a landlord. In addition to keeping your investment properties occupied, as a landlord, you'll need to be available 24 hours a day, 7 days a week to address problems as they arise. As a real estate investor, you have the option of hiring a property manager to handle the day-to-day business operations.