5 Initial Steps To Start Building Wealth In Real Estate

Person calculating real estate costs at desk

getty

For many homeowners — especially Millennials and Gen Zers — the housing market has never been crazier. This can make things challenging for an entrepreneur to invest in certain real estate areas with limited risk.

When the pandemic hit, the real estate situation changed overnight. The housing market heated up even as supply chains suffered. Many fled urban centers while low interest rates and a general shortage of properties restricted buyer options. The result was a unique situation that has frustrated buyers and sellers alike.

Now homeowners are trying to figure out how to navigate the “new normal” of a post-pandemic real estate reality. If you’re among that group, either buying or selling, here are a few tips to help you dominate the modern real estate market.

1. Assess Your Finances

The first and most important rule of real estate isn’t location. It’s understanding and sticking to your financial boundaries. It’s a rule that has always been there and it still remains in place, even after the pandemic.

It doesn’t matter if you’re buying or selling, if you have a poor grasp of your finances, it’s going to put you at risk. In the short term, you may find that you’re struggling to pull together enough money for things like down payments and closing costs. In the long term, you may find that you can’t pay your mortgage consistently.

To avoid these issues, start your real estate prep by combing over your budget. Calculate your personal wants and needs, and figure out how much you can really afford to spend on a home.

2. Look for Outside Financial Support, Too

As you assess your finances, make sure to look for areas where you can tap into financial aid, as well.

For instance, if you’re a military service member, you may be able to utilize BAH (Basic Allowance for Housing) funding. BAH rates were even increased by a significant 5.1% in 2022 to help with ongoing living expenses.

There are also many government programs that have helped with homeownership over time. The most famous in recent history is the 2008 First-Time Homebuyer tax credit. Smart Asset points out that Congress is preparing to vote on a similar bill created in 2021, too.

The finance site also highlights many other government-backed loan and grant options available. Make sure to do your homework to see if any of them can help you in your particular scenario.

3. Perfect Your Bid

If you’re a buyer trying to win a home, there’s a good chance that you’ll end up in a bidding war. The bidding frenzy reached its height during the early days of the pandemic. Even so, Redfin reported that the percentage of offers that faced bidding wars was down to 59% by August of 2021.

In other words, there’s still a very high chance that you’re going to find yourself competing with others to win a bidding war. There are several ways that you can optimize a real estate bid beforehand, including:

  • Making a cash offer if possible, as it will speed up the homebuying process and reduce the closing costs.
  • Offering a larger down payment if a full cash offer isn’t an option.
  • Including an escalation clause that automatically ups your bid to a certain point (just make sure to compose this with legal counsel to make sure the wording is airtight.)
  • Following your own financial limitations and resisting the temptation to make poor decisions dictated by emotions.

4. Don’t Get Greedy

For sellers, the rapid inflation of home prices has made it easy to cash in on their home’s value. Many homeowners have found their properties selling for tens of thousands of dollars above the assessed value — money that they can pocket after the sale.

While this is a great situation for sellers, it’s also one that requires self-control. If you’re listing your property, you can’t just overprice your home and then sit back and watch a bidding war.

Sure, that’s happened for some folks, but it isn’t a universal rule. In fact, now that things are cooling off from the most intense days of the pandemic, a much lower number of houses are being fought over with the same amount of fervor.

If you’re selling a house, it’s important that you set the price correctly. This means starting at a point that is reasonably low and will attract the attention of a larger number of buyers.

5. Maintain a Holistic Mindset

As a final word of advice, if you want to not just survive but thrive in this real estate market, you need to stay holistic in your mindset. In other words, don’t make decisions in the short term without thinking of the long-term repercussions.

Always step back and think things through. Homebuying and selling involve a lot of serious decisions, and it deserves your full attention. As a rule, try to give major home-related questions at least a day before you make a choice. That way, you can think about everything that your decision will impact.

From cleaning up your finances and finding additional funding to offering optimized bids and setting good home prices, there are plenty of ways to thrive in a hot real estate market. Just take things one step at a time, do your homework, and give yourself plenty of time to make each decision with confidence.