Techniques to maximize your return on investment (ROI) on your first real estate fall into one of two categories. The first is reducing your expenses. Generating the best income for your property is the other.
Reducing Your Expenses
1. Minimize financing costs. If you’re purchasing your real estate investment with a loan, compare lenders to get the best deal on financing. Your exit strategy for the property plays a part in determining what type of financing will get you the best ROI. An investor who plans to buy and hold for asset appreciation may want a low-interest fixed-rate 30-year mortgage. However, the right adjustable rate loan may make more sense for an investor who plans to flip the property.
2. Purchase a property that’s nearly ready to rent or sell. That fixer-upper may seem like a great deal. Getting it into condition to rent or sell is almost guaranteed to cost more than your projections. For your first real estate investment, consider a property that only needs minor cosmetic improvements.
Generating the Best Income
3. Create your marketing plan early. You need to know how you’re going to market the property before you purchase it. For future landlords, the purpose is to limit the amount of time your rental property is vacant. (Vacant properties provide no ROI.) In addition to listings with online marketplaces, consider marketing opportunities that are unique to your property. For example, if you’re property is near a hospital, you could reach out to the hospital to see if traveling nurses need housing. Flippers need a marketing plan too. The faster your flip sells, the sooner you can move on to the next deal.
4. Get a quality tenant. The wrong tenant can lower ROI quickly. Removing a tenant who damages the property or doesn’t pay rent results in the ROI killer, a vacancy. Your property is not providing any income while you search for another tenant. Use a tenant screening service to get the right tenant from the start.