Do you have a good job? A steady income? No debt? If so, then you should seriously consider getting into real estate investment. Whether buying a property for your family or as an investment for profit, this is one of the most lucrative ways to make money. In this article, we will discuss the benefits and risks of investing in real estate and help you figure out if this would be right for your situation.
What is real estate investing?
Real estate investing is the act of purchasing real property with the intent to sell for a profit. This can be done by using the available cash, or it could involve getting a loan from your bank or other financial institution. The latter option would likely require you to put up some collateral to protect their investment should something happen, and they need to take back ownership of the investment property.
A real estate investor may purchase a residential or commercial property to rent it to earn income. This is called a passive investment because you are not actively involved in managing the property on an ongoing basis but rather hire someone else to handle that aspect for you.
You will need to collect rent from tenants and cover your monthly expenses until your tenant decides they want out or you sell the property (whichever comes first).
What is a real estate investment trust?
Real estate investment trusts are a type of company that invests in properties. It’s similar to how mutual funds are set up; the fund manager selects investments and then divides them into shares that investors can buy.
The difference between buying into this kind of mutual fund is that you own part of an actual building! You also get paid dividends (much like owning stock) based on your share ownership and any income generated from rental fees collected from tenants living inside it.
Seeing as they have so much invested in one place, their cost to buy property tends to be lower than what individuals may pay. Plus, because many people are supporting each purchase being smaller, the risk goes down as well.
What is the difference between a REIT and an ETF?
Both of these companies can invest in real estate; however, they work very differently from each other. For example, a Real Estate Investment Trust (REIT) supports directly into properties while also using a mortgage payment to purchase even more property if needed.
This type of investment strategy is riskier than owning a real estate exchange-traded fund (ETF), which invests in other companies that own property. However, this not only diversifies your holdings but also reduces the amount of money you need to invest because it’s spread out over many different assets instead.
What are the pros and cons of real estate investing?
Pros:
It’s a great way to diversify your holdings. In addition, owning REITs is much less risky than buying a property outright due to the lower cost of obtaining them and their ability to purchase more real estate with every dollar they raise from investors.
Even if you wanted to purchase a property on your own, you would likely need to borrow money from the bank or other financial institution, which means that it’s an investment in real estate, just like buying stock.
Another benefit is that it’s a great way to build your credit score. If you want the bank or other financial institution to be more willing to lend you money in the future for mortgages and loans, then this would be one of the best strategies because it shows lenders how good you are at managing debt and paying off what was borrowed on time.
It’s also very liquid, meaning that once you invest in it, there isn’t much risk of losing all of your capital; however, depending on where interest rates go from here since they have been rising lately, it could change things somewhat. This means if market conditions become favorable again down the road, investors will likely sell their shares which drives up demand causing prices to go higher and creating an upward spiral.
Cons:
You are responsible for any maintenance, renovation, and repairs needed throughout its lifetime. This is something else to keep in mind when investing because while it’s a great way to grow your money, you also need some extra cash lying around if something needs fixing or replacing.
The real estate market can be volatile; you’re putting your money into an asset class where prices can fluctuate significantly. While some people make their fortunes by buying when prices are low and selling when they rise, this investment strategy requires much more patience than most investors.
Another disadvantage of this type of investment is that most of them are only managed by professionals and are not available for direct purchase from individuals. In addition, not all investors have access to buy stock through their broker either, so it can limit who has the opportunity to participate as well.
The same goes for dividend payments; most people won’t receive any unless they own a specific amount due to how carefully it must be divided between everyone involved.
What are the different real estate property investments?
First Rental Property
Rental property is a popular choice for many real estate investors. This is when they purchase a property to rent it out to another party. The rental property owner collects monthly payments from their tenant and can either collect one lump sum payment at the end of each year or have them pay per month until they move on (or die).
Properties that are purchased then turned into condos or townhouses also fall under this category. These properties tend to be worth more money than traditional homes because there are fewer maintenance issues due to shared walls with other owners living nearby.
Condos come with higher association fees, though, which cut down your overall profit margin if you choose to sell quickly. Townhomes don’t typically require much upkeep, but you will likely have to pay the association dues each month.
Residential Property
Another popular choice for a real estate investor is a residential property. This can include everything from single-family homes and duplexes to apartment complexes. While this type of investing might be riskier than other forms like rental properties (you may not always have a tenant), the reward can potentially be more significant as well.
The average person may not have enough money to buy an entire neighborhood on their own, but you could always choose to partner up with some other people and create your real estate, an investment group. They will likely provide more security should something go wrong, so keep this option in mind if you decide to go this route.
Wholesaling Property
Some real estate investors choose not to get their hands dirty at all, while others may work in an area where they don’t want the responsibility of owning a rental property or other types of a business ventures. Wholesalers are people who purchase properties and then turn around and sell them to other investors who will take over the responsibility of overseeing them.
This is a good option for those who don’t have much capital and may not afford anything significant enough on their own but are willing to put in the leg work necessary to make sure they get paid when someone else purchases one of their properties.
If you want to become a wholesaler, you must do your homework and learn as much as possible about the market. You can’t expect to make money if no one is willing to pay what you’re asking for, so always remember this before making an offer on anything.
Commercial Property
While residential property provides more security than other real estate investments, commercial property can provide even greater returns. This is when you purchase land or buildings that large companies use for their business purposes.
Some examples include strip malls, office space, and other related venues where people will come in contact with your product every day (even if it’s just driving down the road). Commercial property is a great way to cash in on the work of others and achieve success by making money without exerting too much effort.
How to start your own business in the real estate world?
One of the best ways to start your own business would be to purchase a property and either rent it out or live in it yourself. This is usually done by taking advantage of some offered financial assistance, such as getting help from family members, using the money you saved up on its own for this purpose, etc.
If none of these options are available to you, the second-best thing would be to get a loan from a bank or other financial institution.
In any case, you must consider all of your choices before taking on this type of expense because not everyone is comfortable with being in debt and having monthly payments attached to their credit report for years at a time. If possible, try renting out part of your property instead so that way, if something unexpected happens, you have an easier exit strategy in mind as well.
Why is now the perfect time to invest in real estate property if you can afford it?
Even though there were some fluctuations within the market and specific changes that affected those who wanted to buy and sell their properties, this was still one of the strongest years since 2008 before everything collapsed due to housing prices falling by more than 30% across all types including residential homes for sale, commercial spaces such as office buildings, retail stores, etc., and even land where people could build anything they want from anywhere else without having to purchase it first.
This means looking into making significant investments would have been able to see how much prices increased over a decade and what properties were going for at any given time, along with who was buying and selling them.
If you pay attention, this information is all readily available, which means now might be an excellent opportunity to make some investments that could turn out very profitable in years to come, especially if you’re looking into purchasing something like multi-family homes (MFH) or small apartment buildings (SAB).
For those wondering why it’s essential to think about investing in real estate property when there are other types of assets such as stocks, bonds, mutual funds, etc., then they should understand that MFH and SABs can both provide steady returns so long as specific criteria are met, and tenants can pay their monthly dues in full.
Where should I buy my first property – suburbs, city, etc.?
While many variables go into deciding where you should buy your first property, including whether or not it’s within a certain distance of schools, public transportation, shopping centers/malls, etc., the main thing to consider is whether or not this area will continue to attract more people over time.
For those looking for something with multiple bedrooms along with at least two bathrooms since they have families, which mean kids who also need their rooms now before they’re out on their own once they reach adulthood (college), then buying somewhere like an MFH or SAB might be the way to go.
If you’re a senior citizen who doesn’t plan on having any more children and no longer needs as much space, then condos or smaller properties that only have one bathroom would work just fine, especially if there are some additional amenities such as a swimming pool, fitness center, etc., within walking distance from your place of residence.
There are many things to consider before investing in real estate property which is why it’s helpful for those new to this industry, including helping them find something they truly enjoy living in, whether it’s an MFH with several units where some neighbors will likely be other people like themselves or larger homes with plenty of land surrounding them so long as they don’t mind being away from everything else even if they plan on getting a car.
Are there any other investments comparable to investing in real estate for future growth potentials/returns on investment (ROI)?
The main thing to consider when thinking about other types of investments that are comparable to MFH and SABs is the fact that it’s easier for people who aren’t professionals in this field to invest their money into a stock, bond, mutual fund, or anything else where there’s also an intermediary involved such as a bank since they can help find something within your budget.
Those intermediaries will charge you fees which means less profit from whatever returns on investment (ROI) made over time, so everyone needs to think long and hard before deciding whether or not investing through them is worth it.
If someone wants complete control over what they want without any additional outside influence, purchasing real estate property might be just right for them, especially if there are only a couple of bedrooms and bathrooms.
MFH properties can provide steady returns on investment (ROI) with less risk involved as long as the building(s) are well maintained, adequately insured, etc., so those who don’t mind waiting to see what happens within this specific market will likely be very satisfied with their decision especially if they plan on continuing to hold onto it for several years before potentially putting it back on the market when prices go up even further.
The stock market is another excellent investment but has a lot more risk than MFH and SABs, which means those who choose this route need to be prepared for potential losses, especially when there’s an economic crisis going on or a recession.
In conclusion, there is no right or wrong answer when you start investing in real estate properties, especially since everyone has a different risk tolerance level which means some people will prefer one type of investment over another. Therefore, everyone needs to do their research before deciding whether real estate is a suitable investment for them.
