Whether you’re a veteran in the business or a rookie anxious to get your feet wet, there is a science to investing in real estate. You can turn out to be a genius or a fool, and it will all fall on your research and preparation. One way to move investment homes into other properties is by the 1031 tax exchange program. This program allows you to take advantage of tax savings to upgrade your investment portfolio.

Here are some guidelines to follow when venturing into the investment world:

1. Compare Property Values and Rents
The best way to measure a property’s market value is to compare similar homes within a close radius. This holds true for rentals as well. Reasonably priced rental properties can quickly attract renters. Pricing a home at a high rental rate can push people to buy a home instead. A good measuring tool is to look online or in the local paper to see if there are any specials on rentals. If you tend to see “first month free”, you might want to stay away from that market. If you’re new to investing, stick with areas that are close to you. This will save you from traveling expenses if there are any issues with the property.

2. Be Careful - Tax Laws May Change
The tax code is constantly changing. Don’t base your purchase on the current tax laws. When you find the right property, the tax code should not play a factor. That’s when you’ll know it’s a good investment.

3. Specialize In Something You Know
If you’re a rookie to the business, stick to a market segment that is familiar to you. Focus on one aspect- like fixer-uppers, foreclosures, low-down payment properties, condos, or starter homes. This will help you become an expert in your segment.

4. Know The Costs Going In!
Don’t let the costs come and bite you in the rear! Make a spreadsheet that lays out all the possible expenses. Some things to consider are operating expenses, loan payments, vacancy costs, property upkeep, and taxes. This will allow you to budget accordingly without any surprises down the road.

5. Know Where Your Tenants Are Coming From
If you have increased your rent, don’t be surprised if your tenants want to move. Make sure you collect a security deposit when the lease is signed.

6. Assess The Tax Situation
Taxes are an important part of successful real estate investing. They often make the difference between positive and negative cash flow. Good research will explain how you can manipulate the tax situation to your advantage. (I recommend getting in contact with a tax consultant)

7. Investigate Insurance Coverage
If the seller’s coverage is based on lower-than-current replacement value,
your insurance costs may increase if you pay a higher purchase price.

8. Confirm Utility Costs
Make the phone calls to verify the utility expenses, especially if you’re going to include it in your tenant’s rent.

9. Consult Your Accountant
Make sure your accountant has experience dealing with the evolving tax code. Taxation is a key part when investing in real estate.

10. Inspect!
Always get a home inspection when purchasing a home. Whether you’re hiring a professional or examining the property yourself. An older home will of course require a closer examination but it’s always a good idea to get a professional’s opinion.

These are some general principles to adhere to before deciding on whether to take the plunge. If you are one of those do-it-yourself-ers when it comes to researching properties, then you should also contact HomeZill before making your offer on a home. If the home is listed with an agent or the seller is offering a buyer agent commission, then we can rebate you an additional 2% cash back home buyer rebate in Northern Virginia, Washington DC or Maryland. So give us a call and we’ll check to see what the commission structure is for the homes you are interested in… Good luck out there!

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