There are various types of investments that exist. If you are reading this article, you are probably thinking of Real Estate investing!
Real estate investing is just like investing in the stock market. It might sound intimidating since it commands a lot of knowledge around real estate, but this should not hinder you.
Real estate is a good investment and can get lucrative when you know how to play the game right.
Below are some of the things you should consider before going into real estate investing:
What is Real Estate Investing?
Without going into the complexities, the real estate comprises of land and buildings. However, real estate investment is putting your money towards real estate for a profitable value. How do you do this? You can purchase or construct, then rent out or sell it for an increase in price.
In real estate investment, you can go to the residential or commercial way. When you pick the residential route, it would consist of you owing homes or residential houses, then lease out, rent, or sell to families. For instance, when summer schools are closed, and you own a home near the beach, then you rent it out as an Airbnb.
In commercial real estate, investments involve you selling or renting to industries, corporates, or banks. However, this is defined by the kind of building you have and the number of units. Not just any building may pass as commercial unless you have four units.
Below are some of the ways in which you can invest in Real Estate
- Rent
- Buying and Selling
- Tax Benefits
- Interests
Rent
This is by far the most popular way for you to invest in real estate. You could own various residential and commercial property, BUT you decide to rent them out at a value that is profitable compared to the price which you invested in purchasing or constructing the building.
Renting provides a stable, secure, consistent and predictable revenue collection amongst the other types of real estate investing.
At times you may not be free, but we got you! You can hire a property management company; they won’t cost you your tooth and nail but just about 10% of the total amount you get as rent. Also, you could hire agents to secure tenants on your behalf.
When you rent out, you still have specific responsibilities that you may need to carry out, such as maintenance and other duties of a lessor. This demands you to have a higher level of commitment, but there are options for hiring companies to manage the property for you.
Buying and Selling
This is merely an appreciation. Works like a savings account, put your little money in the bank and give it time then Viola! It multiplies in folds. Similarly, you could buy a property then let it rest as it grows in market value; that is, it appreciates then sell it at the prevailing market price at a profit.
Here are some of the things you should consider in cases of appreciation:
- The property purchased must tend to increase in value
- Location of the property – this is an excellent determinant in market value. Go for populated areas with easy access
Interest
The term interest is what best strokes the mind of an investor. But, hold it, this is a slightly different type of interest.
Through this type of investment, your role is likened to Private equity firms or real estate investment companies. The role is similar to that of a bank where you give out loans to people who have an interest in investing in real estate but are hard up. Once the credit is given out, you assume the role of a collector of the fees and the interest as agreed in the contract for the lending of the money.
Tax Benefits
You are a rookie; you may not know this, but hey! Did you know that one of the benefits you enjoy as a real estate investor is tax benefits?
Being a real estate investor makes you a business owner, and as a business owner, you stand to benefit from tax deductions.
This is How Tax Deductions Work:
Assuming you are taxed at a rate of 15% and your deductions are at about $2000 you save $300. In Real Property investment, IRS takes centre stage in revenue collection with deductions running up to $10,000 depending on the presumed rate of decrease in the value of the property.
Do You Have What it Takes?
Real Estate investment may not be for everyone, but how would you know if real estate investing is your true call?
Here are some of the things you need to keep in mind;
- Knowledge and skill- knowledge is power; this helps you in scouting for market values and options. The last thing you want is making a bad investment plan.
- Determination and tolerance- you will meet various clients more so tenants who may be very difficult to handle. Do you evict them or not?
What Are the Market Options?
It goes beyond your knowledge and skills when it comes to real estate investing. You should only invest in a market that is on an upward trend. Markets that are on a downward spiral should be avoided like the plague because investing in such defeats the whole point of investing.
Do your research on various market options reading from Forbes website and various search engines.
What Resources Do You Need?
You will need resources if you want to invest in Real estate. The question you should grapple with is not how much, but how do you spend and what are the risks. In investing, there are risks, so you must be prepared for the event that you may lose it all.
Do avoid such do not put your eggs in one basket to avoid being in bad financial crisis in the event of a failure.
Are You Able to Match the Level of Commitment Required?
You may opt to invest in real estate through renting. When you decide to rent it make you the lessor and the tenant becomes lessee. Some duties are imposed on you other than collecting the crisps dollars.
Some of the things required of you include maintenance and repairs. This should not make you shy away from investing. You can hire a company that may act on your behalf in collecting the fees such as rent and carry out the repairs and maintenances at a commission form the dues collected.
Buying the Right Property
Buying real estate property is slightly different from walking into a McDonald’s joint and asking a beef burger with extra cheese. There are various factors that you need to consider before settling for the property to buy.
Maybe you are scratching your head right now, wondering what are some of the things you should consider before settling for the right property. The right property here means one that can generate good monetary returns for you.
First of all, you should have a rough idea of the kind of property you want to invest in since the categories cut from residential to commercial, not to mention industrial.
Here are some of the factors to consider when buying property:
- Location
- Costs
- Profitability
- Condition
Location
This is the backbone of real estate investment. It determines whether you will be able to make profits or not. Bottom-line LOCATION IS EVERYTHING. If you choose to rent, it is best to have your property near people attracting areas such as colleges or job-hunting areas. Also, consider factors such as accessibility through public transport; this enables your property to appreciate, and it attracts tenants.
Also, once you secure property to do a little bit of research on the nearby places, this will help have an overview of the prevailing rates which you could in turn use to calculate the average profit you can get as well as the rate to lease out the property.
Costs
You want to make a profit. Thus, consider the amount you will pay against the cost for repairs and the chances of the property appreciating if you do the math and end up with nothing don’t invest.
If you are going for a mortgage plan for a property, it is best that the property purchased to be that of increasing value for it to be able to finance the mortgage.
Profitability
Hold consultative meetings with financial advisors to get a rough estimate of the profit that you are likely to get. Look at the capitalization rate as well as the net operating against the asset value of the property. If it runs you into losses, then shy away from that investment.
Condition
This is where value for your money comes in. Inspect the property to assess the state of the property and how much work you need to put in before you can lease or rent it out. This depends on entirely what you want as some people opt for purchasing wreckages then flip them and sell while others prefer that which does not require additional work.
Always go through the agreement for sale thoroughly before putting your money towards real estate investment. Some buyers may swindle you through contractual terms that you may not be conversant with.