Interested in investment properties but not sure where to start? Here's how to lay a solid foundation for real estate investing.
Investing in real estate can be a highly lucrative opportunity, opening the door for entrepreneurs to earn a steady stream of passive income and long-term earnings.
However, the real estate landscape can be quite confusing, especially for new investors. Many first-timers are unsure of where to start and which strategies to employ.
Keep reading to learn five practical tips for first-time real estate investors.
A market survey should be one of your first steps when looking to purchase an investment property. Conducting an extensive market analysis can save you a whole lot of hassle in the long run and effectively prevent you from making a bad investment.
Familiarize yourself with statistics about the area such as property tax prices, school districts, crime rates, and general amenities. At the same time, be sure to consider your competition, local rental market activity, and property inventory.
If everything lines up right, you can feel confident in making your real estate investment. Otherwise, you could decide to search for properties in an entirely different market.
If you want to play the real estate game, forming a limited liability company (LLC) should be at the top of your to-do list.
By definition, an LLC is a separate and distinct legal entity. By making your LLC the legal owner of record when purchasing or transferring real estate titles, you can proactively separate your personal assets and protect them from potential lawsuits.
While you can buy real estate in your name, as an individual, an LLC offers tremendous benefits — particularly regarding asset protection and taxation:
Federal income tax regards taxation of an LLC as "pass-through taxation." In essence, earnings by the LLC such as rental income from leasing properties go through the LLC before individual members can access it. Pass-through rules prevent LLC members from being double-taxed.
So, when reporting income on federal income tax returns, LLC members do this individually (usually on Schedule E). Income earned by an LLC is taxed at the individual level only as against a traditional corporation that would be taxed at the corporate level as well.
In the event of a legal dispute, real estate investors who have an LLC won’t bear personal liability. Rather, as the property owner on record, the LLC would bear the damages of any unforeseen occurrences. If the deed and title are in the name of the LLC, you personally wouldn’t appear as a defendant — only the LLC would be named.
Similarly, if you’re required to pay monetary damages, these funds would only come from LLC assets. Meanwhile, your personal assets would be protected and you would remain anonymous.
To ensure your real estate investments run smoothly, you’ll need to put proper operating systems in place — regardless of whether you’re a full-time real estate investor or just doing it on the side. These systems will improve your efficiency so you can increase your margins and spend less time managing the day-to-day operations.
One way to implement efficient operations is to use technology solutions that assist with key real estate operations — including advertising, tenant communication, accounting, rent collection, insurance, banking, maintenance, and more.
There are many excellent real estate software tools available depending on your needs. While some of these come with high fees, Azibo offers premium tools for rent collection, insurance, lending, and banking, and more in an all-in-one platform, free of charge.
When starting out any business, it’s important to have a business bank account separate from your personal accounts. This is especially true in real estate, where you'll need to carefully track income and expenses and avoid commingling with personal finances in order to capitalize on the many tax benefits available.
Knowing your cash flow helps you put strategies in place to improve operations. It’s also necessary for determining your monthly budget for property costs like maintenance, mortgage payments, property managers, and an emergency fund for unforeseen repairs.
During tax season, a dedicated bank account will readily provide the information and documents about your real estate investment that you or your accountant needs to file your return. Furthermore, you can enjoy other tax benefits including:
While surveys and statistics can be great sources of information, nobody knows their community better than locals and existing investors. As a new real estate investor, networking is vital to your success.
But making connections isn’t a one-time activity. Rather, networking is something that should happen every single time you make an investment. Building relationships with real estate investors allows you to access valuable advice and actionable real estate tips — which can help you avoid pitfalls down the road.
Networking may even open the door for you to receive mentorship or investment opportunities from savvy, experienced real estate entrepreneurs. At the same time, it might help you form partnerships or launch joint ventures that can prove profitable over time.
Real estate investing requires ongoing learning. Market trends are constantly changing, so investors need to adapt with the times and regularly familiarize themselves with new information.
At Azibo, we’re here to help at every stage of the investment journey. Built for landlords, our platform provides free tools for rent collection, banking, insurance, loans, and more to help you save time, stay organized, and achieve passive income. Explore our one-stop-shop for landlords today.