A real estate landscape is a potential gold mine for investors.
Some of the richest people alive hold property as a crown jewel of their portfolios. For many others, this asset serves as a means of diversifying the investment strategy and creating wealth.
The only problem is that for newcomers, it can be tricky to establish a market foothold. Sound investment decisions hinge on a multitude of moving parts. They aren’t an exact science either.
The good news is we’ve got a bunch of actionable tips prepared for you. This guide to real estate investing will help you overcome initial hurdles and gain the know-how.
Laying the Foundations
You won’t get very far without a proper investment strategy in place.
To start building it, you should take a few key things into consideration. First off, determine the amount of time and money you can afford to dedicate.
Financing, in particular, is an element that makes or breaks the whole game plan. There are many different avenues you can explore hare:
Whatever your choice is, try not to bite off more than you can chew.
Moving on, pick your niche— the type of an asset class to pursue. It can be anything from a small retail space to a multifamily house. We would argue smaller properties are a better fit for someone only starting out.
And if you’re not versed in tasks such as market analysis and research, reach out to professionals. Online resources, such as Compass Commercial Real Estate, make things much easier for you. They streamline various investment processes with a blend of cutting-edge tech and industry expertise.
An alternative would be to work with a local real estate agent.
The Angle of Approach
With the general strategy formulated, you can choose your specific investment tactic.
There are several possibilities to entertain.
First off, we have real estate investment trusts (REITs). They allow you to put money in real estate without having to bother with any particular physical property. REITs own various real estate classes, operate on exchanges, and reward investors with dividends.
They are a beginner-friendly option you can access via a brokerage firm (if it’s publicly-traded REIT).
Secondly, you can consider online investing platforms like Fundrise and Prosper.
These solutions have leveled the playing field, opening it up for novice investors. They act as busy hubs connecting real estate investors and developers. Financing is done through debt or equity.
The risks you have to be aware of though, are poor liquidity and speculative nature. There’s no way to simply unload the investment like in the case of stocks.
Thirdly, those who want to take baby steps first can take advantage of Airbnb. The level of time and financial commitment is minimal (and sadly profit too). You don’t have to strike long-term deals with renters and can offer just one room.
Investing in Rentals
Investing in rental properties is a common tactic associated with unique benefits.
You can use leverage to cover a portion of the cost upfront. The rest (balance and interest) is something that one usually pays off over time.
The key to achieving profit is charging more than the total expenses of owning the property. In other words, the positive cash flow should be your main objective.
Here, keep in mind a few things. First off, brace yourself for unexpected expenses, which kick in sooner or later. Moreover, you have to invest money and time in fixing and maintaining your real estate.
Not only that but it’s necessary to look for tenants and then screen them. To avoid costly downtime, you may even need to engage in some promotion. So, make sure you’re comfortable performing all these activities.
When it comes to your first moves, experts advise beginners to go for single-family homes. The upkeep is fairly simple and you have just one tenant to manage.
Finally, you can decide to rent the entire property or opt for the house hacking approach. In the latter case, you occupy your property and rent certain units or rooms within it.
House flipping is a bit more challenging tactic, but one that can be incredibly lucrative.
The basic idea is a simple one.
You attempt to find a property under market price, preferably in a developing neighborhood. Then, you do some cost-effective renovation and home staging to increase the asking price. Lastly, you find a buyer and score a nice profit.
Of course, this endeavor is easier said than done.
For example, you need solid credit to initiate this investment approach. The amount of starting capital requirement is steep and lending standards tend to be tight too.
The longer you have to sit on the property, the lower your potential profit gets. You invested all that money on renovations, property taxes, and utilities. You can’t afford to let these eat away at your budget.
All in all, flipping comes down to solving a complex risk-reward equation.
This is to say to approach this particular strategy with caution. Either that or seek a partner adept at calculating expenses and estimating profits. More power to you!
Time to Capitalize on our Guide to Real Estate Investing
The real estate market can be an unforgiving environment for unseasoned investors.
Even with plenty of cash and time at your disposal, there are many things that could go wrong.
So, follow our step-by-step guide to real estate investing. Assess your wants, needs, and resources. Run the numbers and be realistic about your goals.
Check the rest of our real estate investing section to find more handy tips. It’s time to find those lucrative deals and elevate your portfolio.