For many, an investment in real estate presents an opportunity for them to grow an existing portfolio of investments, or start their very first portfolio on the right note. Investing in real estate presents certain challenges other investments, such as investments in stock, do not. For instance, purchasing a home or rental property requires management, maintenance, landscaping, and repair; whereas buying Google or Apple stock does not oblige you to fix their faucet when it leaks, you can reap the rewards of your investment without much personal involvement. Regardless of whether you are buying a home for yourself, or an income-generating property to lease to tenants, investing in real estate can be a very rewarding undertaking.
Before you dive into your car and peel out of your driveway towards to closest mortgage firm, it’s important to develop a strategy around the investment you’re about to make. Buying any property without researching it first is the biggest mistake budding real estate investors make. Finding a home that is listed at twenty percent below market value might seem like a really good opportunity, but if you don’t look into what might be the cause of the price disparity, you could potentially lose money on your investment, or have to hang onto it for a longer time than expected before profits become realized. This is why research is important, because the price disparity might just be the property owner not wanting to make a few appliance upgrades (furnace, water heater, etc.) which could explain the difference in price. However, it could also be an issue with the foundation that could be a five-figure repair, at which point all of the money you thought you were going to save becomes the repair fund for a property you had a different vision for. Mistakes such as these can have a detrimental effect to you growth strategy and investment strategy.
Real estate appreciation is one of the most common methods of generating income from an investment in property. While many people own properties they can rent to tenants and generate income from, most homeowners generate profits by living in, and maintaining their home, which grows in value over time and allows them to profit from its sale in the future. This form of investment can be somewhat risky because the conditions within the neighborhood dictate whether the property increases in worth. If something undesirable were to happen in the neighborhood, such as a school closing, or loss of industry, property values could decline and lead to a loss for the investor.
Investing in property to generate a cash flow from renting to a tenant is a popular investment method, and over time can become a very lucrative source of revenue for the investor. That said, it is important to manage properties well, and understand that there is a cost associated with hiring a property manager to look after the home, and tend to the needs of the tenants within the residence. This means keeping a reserve of money aside for surprise repairs and necessary upgrades, such as the installation of a new furnace or water heater.
Secondary Real Estate Income
Some properties, such as commercial properties, as well as an increasing amount of residential properties, can become great sources of income if an investor is willing to get a little creative. Modern residential buildings often have gym equipment available for its residents to use, as well as other accommodations including arcades, theatres, and similar luxuries. Investing in such equipment and renting it to the management companies of those residential and commercial properties can become lucrative as more and more properties seek to incorporate elements of luxury living across all price-points.
Tips for Investing In Real Estate
Do Your Research
Before contacting any broker or agent, it is important to know exactly what you want to get out of the interaction and subsequent transaction. This requires some research on the side of the buyer to make it easier for the agent to find the best properties, and close on the most desirable properties before other buyers can find it. Being adequately prepared for the buying process will make the entire process go along more smoothly, as well as make negotiations among parties easier.
Register an LLC or Consider Incorporation
Registering a business, and making purchases through that business is an absolute necessity when thinking of investing in real estate. Not only is it easier to build a brand on the back of a business, as opposed to an individual reputation, it’s less of a liability to yourself, and exposes you to less risk. Without starting a business, your personal assets are at stake if ever sued for issues regarding your investment properties. It’s important to remember that protecting your investment is just as paramount as making a good investment in the first place.