Investing is inherently risky. Real estate investing is no exemption. Not long ago did we experience the subprime mortgage crisis. It largely contributed to the U.S recession between December 2007- June 2009. An effect that still exists today. With such a huge potential of contributing to an economic bubble burst, does it mean real estate is as risky as it sounds? Well, if you do it right, you can make some real money. Reason being, property is valuable.
Mark Twain would say, “ Buy land. They’re not making it anymore.” Is there any good in investing in real estate today? As with any other potential investment, engaging in due diligence is vital. It’s after a thorough research and examination, that you’ll be able to understand the possible risks. Real estate investing is not for everyone. But if you’re ready to dip your toes in the waters, my coaching hat is on. Let’s talk strategy!
Real Estate Investment Groups (REIGs)
This is ideal if you want to own rental properties without the hassles and tussles of running them. All you need is access to financing and a capital cushion. Private partnerships or REIGs are groups similar to mutual funds that invest in rental properties.
Through an operating company, they allow you to buy one or multiple living units in a condo or apartment. The operating company entirely manages all the units; handles maintenance advertises vacant units, and interviews tenants. In exchange, the operating company gets a percentage of the monthly rent.
A standard real estate investment group lease will be in your name. All the units in your property of choice secures a portion of the rent to guard against occasional vacancies. This means, you’ll receive some income even when there are empty units. As long as the vacancy rate for the pooled units doesn’t spike too high, there should be enough to cover the costs. Find a REIG that’ll guarantee you a monthly cash return on your investment, ceteris paribus.
Find a suitable location for Real Estate Investing
If you’re buying a home as your investment , location is a critical factor to consider. Too often, people make decisions based on the house itself, instead of its location. It’s a huge mistake.You may be asking yourself why location is so vital to real estate investing.
You can change the condition, size, and price of any home. One thing you can’t change is its location. Supply and demand affect real estate’s appreciation.
The number of houses in any great location limits its housing supply. The location creates desirability, desirability creates demand, and demand raises real estate prices. Below are things to consider before rolling up the sleeves to look for a great location to purchase real estate.
Reverse Engineer the Future of the Neighborhood
People who don’t understand real estate to its stomach will tell you to go for a safe neighborhood. Guess what, neighborhoods change, just like everything else. In other words, don’t stress on safety. It’s important, but you’d better focus on a neighborhood that you can see a future of. This is what we mean by reverse engineering the future of the neighborhood.
Like we said earlier, do your research. Keep in mind that most good neighborhoods are going to be more expensive. To your advantage, go for a neighborhood that’s on the verge of being the ‘next’ best. A ‘bad’ neighborhood offers a higher floor. It’s less likely to depreciate.
The fact that it’s considered ‘bad’ reduces its risk. For a good neighborhood, ask yourself this,” Where will it be in three years?” Just because a neighborhood isn’t safe now, doesn’t mean it won’t be in three years.
Millennials equal over 60% of real estate buyers. Remember, demand raises a property’s price. With this in mind, is the area you’re buying attractive to this socio-demographic? If so, you’re on the right track. If not, you should reconsider. There’s a tremendous trajection in the number of millennials buying properties in comparison to those renting.
They have a direct effect on real estate prices. Schools, transportation, grocery stores, restaurants, and shopping centers are some of the top amenities people look for when purchasing a home. For most home prospects, easy commutes to work are the icing on the cake.
It’s obviously through transportation that we’ll have other local amenities like grocery stores. The value of properties meeting the social amenities’ requirements tend to be high.
House Flipping / Real Estate Trading
It basically means, you purchase a house, do some renovations, and sell it within a short time. When buying a flipping house, the key is buying low. As it’s a risk in other investments, house flipping doesn’t guarantee returns. Infact, you could even lose money. Hot markets can as well cool unexpectedly.
It has an appealing side, since it’s quicker than renting out properties for years. If all goes well, you can get the house back in the market, and hopefully make a good return. Ensure you get a great deal on the front end to enjoy a decent profit.
Enquire for the property’s potential in your local market from a real estate agent. If you undoubtedly love hands-on work, then you have it! Just make sure you properly budget for the improvement process as it is key in house flipping.
Rental Properties as a Real Estate Investment Method
If you have the patient to handle tenants, this is for you. You’ll require substantial capital to cater for up-front maintenance costs and cover vacant months. By becoming a landlord, you can enjoy regular income while maximizing available capital through leverage. Properties increase in value over time. Most, in the course of their mortgages. Eventually, you’ll end up having a more valuable asset than you started with.
Even if you decide to sell your rental property, you could earn a nice profit. It essentially depends on the type of property you buy and how you manage it.
Consider a good location for guaranteed growth. Take heed on this: while rental properties are an ideal investment option, there are challenges. Patience and understanding are crucial.
Sometimes, you may face a tenant who delays renting payment or doesn’t pay at all. On other occasions, there arises a need for additional expenses; repair, insurance, etc.
As Murphy’s law states, things that can go wrong will go wrong! Ensure you have enough cash when considering buying rental properties. A debt should not be your option. Follow it up with an emergency fund to cater for your living expenses.
Start small, be prepared for risks, keep it local, diversify, and remember, debt is not an option in real estate investing. I cannot stress this enough.
Debts create higher risks. You may take longer to save up for this kind of investment, but it’ll save you thousands in interest. Keep tabs on your real estate investments and go for a fully-funded emergency fund.