Which Way Should You Start Your First Property Investment in 2023?
Property investments have always fascinated newbie investors hoping to cash in an easy buck. Do they always succeed, or is there more to it? The irony of the matter is that only success stories live on in public consciousness. In comparison, the countless futile attempts to make investments stick are lost in the grinder. We intend to supply you with a viable answer on how to start your first property investment in 2023.
Note there’s no foolproof formula because even the best starter real estate investments encounter numerous variables that don’t depend on your input or consideration.
Should you dip your toes in property investments in 2023?
You must know that the economy is facing inflationary tendencies and high-interest rates. Inflation has repercussions on the real estate market. For instance, banks offer loans at higher mortgage rates, properties are pricier, and construction costs are higher. Due to these higher expenses, the US housing market, similarly to the global market, suffers from a shortage of cost-effective options. Still, you can find creative ways to bypass inflation and still money.
Our advice is to proceed cautiously before joining the rental game or trying your luck at house-flipping. For this reason, reach out to expert local real estate agents, financial advisors with superior credentials, real estate attorneys, and contractors before rushing into real estate investments!
Initial steps to a bright investment future
If you think about it, property investments don’t differ much from buying your first home in 2023. In either case, building a good FICO credit score is highly advised to impress your loan lending institution. The higher your credit score, the more eligible you become for a mortgage on favorable terms.
On the other hand, suppose you “suffer” from a horrible credit history or have a low income. In that case, you can still apply for a mortgage loan, albeit granted at a higher interest rate and a larger down payment.
Money matters, plus interest rates
Let’s highlight the fact that first-home interest rates differ from investment property mortgage rates. If you apply for a bank loan intending to invest money in real estate, prepare to pay 0.5 to 0.75 percent more interest rate. Lenders consider rental homes an unsafer undertaking and need more serious assurance.
In addition, don’t let higher down payments take you by surprise! When you purchase an investment property, the down payment will be at least 25 percent more than at your first residence. Remember when we mentioned the importance of flawless credit history and excellent credit scores? To apply for an investment asset mortgage, you must score at least 640!
What asset should you invest in in 2023?
There are no black-and-white guidelines on which properties you should favor and which ones you should reject.
House flipping is a no-go.
With that said, we don’t recommend house-flipping in 2023. Our primary reasons are inflation, and home values are unstable and subject to swift changes in certain US regions.
For example, San Jose, CA, featured one of the most expensive American real estate markets in 2022. In 2023, home prices nosedived by about 5.8 percent, causing headaches to regional house flippers. Can you imagine their frustration? They must settle the downpayment, monthly mortgage rates and bills, renovation costs, HOA fees, etc. If they sell the asset, their ROI would be small or even get in the red. It’s a catch-22 situation because it will still be a money pit if they hang onto the investment.
Play the rental game!
Start small and rent out your second home to a reliable tenant. For this purpose, organize meticulous tenant screenings to pick the most financially (and mentally) stable candidate. On the bright side, your tenant will pay your mortgage. Hopefully, you will also have an extra income besides getting full ownership of the second home in years. Don’t forget about tax deductions for rental property owners, either!
However, you must also anticipate disadvantages, such as dealing with tenant hassles and unexpected expenses for malfunctioning appliances. After all, you’re still the owner, and it’s your responsibility to keep your home in tip-top shape to avoid asset depreciation. You might wish to repaint your bathroom, update your kitchen on a budget, or implement top landscaping tricks. You might also want to entertain the idea of introducing energy-sufficient gadgets around the house.
An intelligent alternative for investors is owning and renting Airbns, and various recreation facilities, such as cabins and vacation homes. The demand for accommodation at trendy tourist spots will always be high.
Why don’t you experiment with real Estate Investment Trusts?
REITs are considered an ideal real investment strategy because they enable you to access a stable monthly income while minimizing your involvement. The notion of trust defines a company that owns and manages revenue-producing assets. In fact, you buy publicly traded stocks.
In time, your income comes from dividends without being involved in the proper real estate finances or management. REITs invest in apartment buildings, hotels, data centers, offices, retail centers, and medical facilities.
However, minimal involvement triggers disadvantages, such as your dividends being taxed and income depending on factors outside your control, market risks, and hefty management fees.
Where should you look for a starter investment property?
Finding an available and reasonably-priced investment property in a trendy neighborhood in a major American city takes a lot of work. Have you ever thought about discovering suburbs and smaller towns with the promise of bright economic potential?
Look for US regions that will benefit from a substantial capital influx in their education or infrastructure. Secondly, you can search for hidden tourist gems that feature astonishing natural beauties. Low real estate prices are typical in these towns, which will likely double or triple.
Off the top of our heads, we can recommend Fort Myers, Florida, Bend, Oregon, or Meridian, Idaho, and market analysts agree with us. Do you need more recommendations? How about Hot Springs, Arkansas? The median home selling price in Hot Springs was just $222,000 as of February 2023. As a reminder, the place is a genuine tourist magnet with gorgeous freshwater springs. Buying an investment property here sounds like an irresistible deal to us!
Everything starts with keeping an excellent track record of your credit score and financial history. A good score establishes your creditworthiness in the eyes of your creditors and facilitates better loan terms and conditions.
Before investing money in any asset, you must inform yourself about a given area’s real estate market trends. Expert local realtors can assist you by supplying the necessary data on the market and locating the best investment properties. Remember to consider the current inflation and high-interest rates! Then, it’s up to you whether you want to go with house-flipping, residential or commercial assets, Airbnb, or real estate investment trusts. All these investment types have pros and cons that you must carefully consider.
Keep your eyes peeled for assets located in places with great future promises! Even the mightiest residential and commercial rental markets can fall (for instance, in California.) And hidden gems with extraordinary potential will claim their thrones.