A Quick Guide To Investing In Real Estate
Real estate refers to a portion of land, including any natural or man-made additions that are part of the land. Natural attachments can be trees, water, oil, and minerals. Man-made additions include buildings, roads, utility systems, and fixtures. Real estate is a broad term and centers on generating income from the land and its additions. Investing in real estate can be lucrative and can help you diversify your investment portfolio. It also has tax advantages.
While real estate offers prospects of great returns, it’s important to do due diligence before investing your money in a project.
Direct And Indirect Real Estate Investing
Real estate investments can be direct or indirect. Indirect investments are made through pooled vehicles that manage the properties. Direct investments, on the other hand, require you to be hands-on by actually owning and managing the properties. These properties can be acquired directly from willing sellers, or can be acquired through auctions resulting from defaults.
Investing in real estate will demand that you have your ear to the ground and know what’s happening out there. This can only be possible if you’ve got the necessary knowledge. For instance, understanding issues like tax sales overages will require you to attend online courses. But, first, you need to learn more about various course providers through online reviews to ensure you pick the right one for your needs.
There are many ways you can invest in real estate, some of which are:
- Owning Rental Property
When you invest in rental property, you’ll make money by collecting rent from the tenants. The amount you charge will depend on many factors, including the property’s location. Most property owners charge an amount that’ll cover the property’s expenses and leave a reasonable profit or until the mortgage is paid.
You can also make a profit from rental property by selling it when its value appreciates. Borrowing against your property for your next investment is also a clever move.
Flippers are a different breed from buy-and-rent property owners. Flippers buy property with the sole intention of quickly selling it for profit.
There are two categories of flippers:
- Buy-renovate-sell: Here, you buy property and make additions that’ll increase its value, then put it back on the market. Your markup becomes the difference between your total investment and the selling price.
- Buy-hold-sell: In this type of flipping, you don’t fix anything. You simply buy property in a fast-rising market, hold it for a short time, and then sell it for a profit.
- Real Estate Investment Trusts (REITs)
In this trust, investors put in their money, which is used to buy, operate, or sell income-generating properties. REITs are bought and sold on stock exchange platforms. Because of its low risks and potentially high returns, investing in REITs would be a smart move and a great investment portfolio diversifier.
If you’re looking into investing in real estate, but not the traditional way, then REIT is for you. Unlike other types of real estate investments, they have the advantage of being exchange-traded trusts and, thus, are highly liquid. You can quickly cash out your investment without needing a title transfer.
REITs mostly invest in malls, commercial buildings, healthcare facilities, and other large-scale properties. Also, these allow you to make real estate investment with minimal capital.
- Real Estate Investment Groups (REIGs)
In a REIG, a company purchases or develops properties, and then sells them to investors. The investors join the company by virtue of their purchase. REIG then sources tenants and maintains the properties on behalf of the investors. The company keeps a percentage of the rental income in exchange for the services. An entity can own one or multiple units in a project.
REIGs are ideal for people who want to own properties and enjoy their returns without having to deal with the hassle of managing them.
Why Invest In Real Estate
Real estate is said to be in an asset class of its own. Besides being considered one of the safest investments to make, it:
- Has potentially high returns
- Provides long-term security
- Is a source of steady cash flow
- Can be used to leverage equity
Pitfalls To Avoid
Investing in real estate can be daunting, especially if you’re a beginner. Learning to pull the investment ropes can be overwhelming. The secret, however, is in learning from the mistakes that others have made. For instance:
- Investing a big percentage of your personal funds: However lucrative real estate may sound, anything can go wrong, and you may end up going bankrupt.
- Following the herd: Tying your investment on speculation can be dangerous and cause you losses.
- Getting attached to property: As a real estate investor, you shouldn’t get attached to properties that come your way. Treat them as goods for trade by closing in on a good deal when an opportunity arises.
- Forgetting due diligence: As an investor, you should always be vigilant, no matter how good the deal seems. Think of the bigger picture before jumping in. Always factor in all aspects of an investment before putting your money into it.
- Buying property at market value: This won’t give you enough room to make a profit. Investors profit by moving in and purchasing property that’s below market value.
Anyone can invest in real estate through any entry point. But, to be successful, you ought to educate yourself by doing extensive research and acquainting yourself with the field. Doing so will prevent you from falling into the pitfalls many beginners fall into for lack of knowledge. Know what real estate venture and model best suits you depending on your lifestyle.