Real Estate Investment: A Guide for Beginners
Real estate investment is a traditional but still, popular investment method. Its popularity depends on many reasons, such as income generation, tax advantages, low risk, and flexibility. As long as your real estate is well-located and well-maintained, it’ll preserve its value and you’ll always profit.
But where do you start? How can you be sure that your real estate investment is a good one? What are the real estate investment methods? We’ve drafted this “Real Estate Investing For Beginners” to give you the basics. So, let’s begin.
Why Invest in Real Estate
As we’ve briefly mentioned in the introduction, there are many benefits to real estate investing. Let’s go through the most obvious benefits of investing in real estate.
This is a fact with residential properties. When you invest in a residential property, you can secure a passive income for many years. Plus, when you earn rental income, the value of the real estate grows every month, especially if you’ve invested in upscale locations that carry the potential for future appreciation.
A Tangible Asset
While the stock market is very vulnerable to fluctuations, real estate isn’t. Plus, having a physical investment that you can see is a huge motivation to make a real estate investment. You can always visit it, lease it, improve or live in it.
Real estate investment comes with flexibility. When you buy a property, you’re free to flip it and sell it. If you wish, you’re free to rent it. You can make developments and add parcels to it. However, with stocks or bonds, you’ll either hold or sell. Real estate investment gives more control to you, while with other types of investments, you’re dependent on outside factors.
Always in Demand
This is another obvious benefit of real estate investment. People will always need a place to live in and the demand for housing is continuously increasing. This ensures that you’ll get consistent and greater returns by investing in real estate.
Smarter Than Renting
When you make a comparison, you’ll notice that getting a mortgage costs less than renting a house. With the mortgage, you have control over what you’re going to pay. Plus, you have the chance to cover your mortgage if you decide to rent your property.
How To Invest in Real Estate
In the past, property investment options were limited. With the growth of the industry and the internet, many investment methods have emerged, such as rental property, fix-and-flip, crowdfunding, REIT, JV partnership, and wholesaling. Let’s briefly mention the three popular methods of real estate investment.
Investing in Rental Property
This is the traditional method of real estate investment. You buy a property and rent it out. Easy. If you wish, you can deal with the paperwork yourself or work with a property management firm to work on your behalf. Another option is renting out one unit of the property while you live in it.
Buying rental property is a profitable investment, not because it generates rental income, but also is an appreciating asset.
Advantages of Rental Property
- It’s a long-term asset that gains value over time
- It generates monthly income
- You can sell the property when you like
- You can always use it for something else
Disadvantages of Rental Property
- It’s not always easy to find a tenant, especially a trustworthy one
- You’re required to deal with maintenance expenses and taxes
- It can take a while before you sell it
Investing in REITs
Real estate investment trusts, abbreviated as REITs, are similar to mutual funds. They’re companies that own office buildings, hotels, and other kinds of commercial real estate. With REITs, you make a real estate investment but it’s not the traditional physical real estate. REITs are usually traded on stock exchanges so you can buy shares and get dividends quarterly.
Advantages of REITs
- They’re accessible. You can buy REIT shares on an investment platform
- Thanks to their diversification strategy, you get a share of income from different properties they have in their portfolio
- You put no effort as everything is done by the company
Disadvantages of REITs
- It’s like stock investing rather than real estate
- You might feel like you’re not involved in real estate investment
- You have no control over the company
House flipping is an investment method for those who prefer a shorter-term commitment. In this method, you buy a property that needs renovation, renovate it and resell it. This is a great method if you already have experience in the industry.
Advantages of House Flipping
- It generates high-profit
- It’s a good way of gaining experience in real estate industry
Disadvantages of House Flipping
- It generates no income while it’s being renovated
- A proper technical due diligence is required as there might be some hidden costs
- It requires a lot effort and time
Things To Note Before Making Property Investment for the First Time
If you’re buying a property either to generate rental income or for house flipping purposes there are some points that you should take into consideration as a beginner.
Make Sure You’re Financially Ready
Before you commit your funds to a property, evaluate your current financial situation. Do you have a lot of debts? Are your savings enough to make a down payment for the property? Is your credit score good enough to get a good mortgage rate? These are all important questions you should answer before making a decision.
Check the Neighborhood
This is another aspect of property investment and you can get help from a professional to research the area. Is it a popular and trendy area? Are there any prospective projects such as tramlines or highways? Also, check if the houses are easily sold or not.
Get Help From Professionals
If you’re buying real estate for the first time, it’s beneficial to seek professional assistance. Let a professional help you to examine the property, do technical due diligence, calculate prospective costs, etc. This is going to save you effort, time, and money.
Evaluate All the Costs
Real estate investment comes with extra fees, such as insurance, closing costs, utility repairs, and taxes. It’s going to be wise to know all these costs to avoid any misunderstanding or hidden fees. You can ask for a quote from the contractor so you’ll know what you’re getting into.
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