Real estate can be a great investment if done correctly. Most people tend to think that real estate is only for the older generation or people who want to settle down with a family, which isn’t true. Young people should consider or at least investigate the idea of investing in real estate. There are many benefits that come from it such as creating a source of passive income, it’s a responsible and tangible asset and also an investment in your future.
The thought of investing in real estate can be overwhelming for some and it can be impossible to know where to start. There are many different steps to consider before investing and you need to be certain that it’s the right option for you personally, everyone has a different approach when it comes to real estate. The guide below will help you with deciding if investing in real estate is the right option for you and if so how to go about it.
Why invest in Real estate?
If you outright purchase a house, then it is your house. You get to decide whether you would like to rent out the property or fix it and sell it on. You will reserve the full profit yourself and not have to share it with anyone. If you earn money from renting, you will also be liable for some tax benefits. Do some research and see if you can write off expenses that are associated with your rental property.
It can be a scary thought for some people to have a home in one fixed location, but you don’t have to live here forever! Purchase a house, call it home and then sell it or rent the property in the future.
When you own your own property, you have control over it as an individual investor. You get in be in charge and decide what happens and when it happens with the property and have control over the performance and returns. It is a tangible asset so you can go and physically see it at any time. It also looks great for you and gives you credibility, this can help you fund bigger deals in the future. Renting your property is a guaranteed way of securing money as the need for renting properties to people will always be there.
Here's a closer look at some of the different ways you can invest in real estate:
Invest money in big deals
One popular way that people invest in real estate is by joining with other investors to finance in a bigger deal in either a commercial or residential space. There are ways you can invest in larger real estate deals online, some good platforms to do this on are “Fundrise” and “RealtyMongul”. With this type of investment, you can invest very little money and still be an owner in a property. This is great if you're looking to invest in real estate but don’t have the funds or aren’t too sure if it’s the right thing for you. Another great thing about this type of investment is that you don’t have to be an accredited investor. Anyone, no matter your financial situation can invest in real estate these days.
Purchase your own property to rent
Wanting an extra monthly cash flow on the side? Purchasing and then renting out a property is a great way to earn extra cash and keep your daily work. The best way to go about this is to purchase a property that has a combined monthly mortgage payment plan, home insurance, and a low property tax payment. There are a few ways to find a house that’s tax is lower than the rent. You could buy from a location with high rents or put a lot of money down so that your mortgage is low. Do your research and find out what works best for you and the property. Great properties to purchase are multi-family or single properties. They are high in demand and have very good pricing options. They also have strong real estate markets and you are assured to gain a profit back.
Real Estate investment trusts (REIT)
If your wanting to get invested in real estate but don’t feel ready to take the jump into owning property, then you should consider a real estate investment fund (REIT). There is the best way to get yourself involved in real estate without physically being involved. A REIT works by setting up a fund that invests in mortgage instruments, stocks, and bonds in the real estate field. There are a few different types of REITs so it would be best to sit down and do your research to see which one suits your needs best. Some private REIT funds even have a better return than the public REITs. IF you are looking for a simple, easy and quick way to see a cash return then consider a REIT.
There are many TV programs dedicated to flipping properties and they make it look very easy, don’t be fooled. This option isn’t for everyone and the outcome could go either way. Most of the time flipping houses is extremely rewarding but it takes a lot of time and effort.
To do this you will need to find a house selling at a bargain price and needs work doing, but the less work the better. Try to find a house for low cost but only needs minor cosmetic repairs, you don’t want to drag yourself into debt fixing up the house when you may not even see a profit at the end. Then you make the home look as aesthetically appealing as possible for your budget and then sell the property for a profit if all goes well. Flipping homes isn't for everyone so make sure you do your researching into location, peoples needs, and price. If you flip your home successfully it can be a huge success and an incredible investment.
What you need to consider when investing in real estate
Before you decide to invest in real estate, there are some important factors that you should take into consideration, some of these are:
Are you mentally prepared?
If you are looking to flipping or renting out your property, then you need to be mentally prepared for this. When flipping your house there is a whole list of things that could possibly go wrong. The house might need more work than originally expected, it could take longer to complete or the way you’ve designed it might not be to everyone taste. It can be very stressful but also highly rewarding if it goes well.
When renting you will have to stay in contact with your tenants and help them if things go wrong with the house. They could call you any hour of the day or night with issues about the house and fix it yourself or pay someone to fix it. If your wanting an option where you don’t have be so hands-on, then maybe renting isn’t for you.
Work on your credit score
If you need to take out a financial loan to help fund your property, you will have to have a good credit score. If your credit score is low or non-existing, then you might be refused financial help. You will want to make your that your credit score is at least 650 or higher. The higher the credit score the easier it will be to be approved.
Always have an emergency fund ready. You don’t know what will happen to the house and you might need to end up paying a lot of money to get something fixed or re-built. If you don’t have the funds to do this then your property will be wasted, and you won’t be able to earn any money from it. Always have backup funds in case of an emergency, you don’t know what life will throw at you.
Study the market
Before you even start looking into investing you need to do your research into the real estate market. Do your homework - is the location any good? Look into the job and population growth in the location you are interested in. The location could be perfect but if people aren’t moving to the area then you may lose out of profit. An increase in jobs can create a rise for demand in the market.
The population growth of your chosen area is a strong indicator of a good real estate market. The people who are moving to the area or more births will mean that people are looking for new or bigger homes to move too. If there are more buyers, then properties in the sellers’ market then people will be looking into renting properties. Look into the prices that other rental properties are going for, this will help you with pricing your own property.
One of the first things you need to do before you start looking for properties is starting your mortgage application with a lender. Most real estate agents will need to see a pre-approved letter from a lender before spending their time helping you find a property. If they can’t be assured that you have the funds available, then they won’t want to waste their time. People selling their properties will require the same. People will want to be certain that you have the funds available to pay for their property so it's important to do this step first.
Investing in real estate is a big opportunity to earn extra cash. It doesn’t hurt to speak to people in the same field who have experience and knowledge to share with you. Join a network such as the real wealth network, here you will find all the information and resources that you need to help you achieve your goals.
You need to use your head when investing in real estate, do not follow your heart. Always get a second opinion on the house from a professional. Never buy a home without having it inspected beforehand. They will cover every inch over the house and tell you exactly what needs work or changing. You don’t want to purchase a house and then discover it has a secret mould infection! Get a second pair of eyes to inspect as it is worth the extra cost.
If you are debating going into the real estate market, then there really is no time like the present. Do your research, find someone to guide you and give you valuable advice and find the option that suits your personal needs best. There are different ways to invest in real estate but don’t let it overwhelm you. By following the guide above you should find it easier to invest in the right real estate properties that meet all your financial goals.