Real estate may be an appealing way of making money, but real estate investment is not a path that suits everyone. This guide was written to give beginners a better understanding of this world’s vital terms, needed skills, and approaches to acquiring and profiting from a property.
What Does This Involve?
Real estate investors invest in a property to profitably sell later. Investors can focus on multiple properties or combine capital with other investors to create a fund for multiple investments, earning dividends whenever these fund-invested properties are sold off. You can also become a landlord, retaining ownership but profiting by renting or leasing a property.
How Do You Make Money from This?
Even when interest rates rise, you can profit off investments. How you invest depends on your risk aversion and capital. Here are the main ways that investing can pay off.
Appreciation
Because properties gain value over time, the profit comes from selling once your property is worth more than your investment. The smart money on appreciation comes from investing in developing neighborhoods; less time is needed for properties in such areas to exceed what you paid. Property appreciation is often a long game with a one-and-done payout.
Becoming a Landlord
If you want regular, reliable passive income, consider renting or leasing your property. As a landlord, you collect rent and make emergency repairs. You can also hire a property management company to delegate this upkeep.
Flipping
This involves cheaply buying a subpar property, renovating it, and then selling it at a profit. Flipping offers great profit but demands an understanding of home repair and renovation to avoid losing money. Consider hiring a contractor to give you an estimate on any repair costs.
Real Estate Investment Trust (REIT)
If you want investment income without any full ownership, consider real estate investing partnerships. There are several options including REITs. Think of these as mutual funds for investing in commercial properties. Anyone can invest in REITs, which is much like investing in the stock market as they are publicly traded. Should your REIT turn a profit, you earn a dividend to either cash out or reinvest. While REIT investments lack any large up-front costs, you cannot benefit from appreciation, and dividends are taxed upon cashing out.
Five Vital Skills for Success
Know the Lingo
- Cash Flow is the investment profit after accounting for operating costs, expenses, and other incidentals.
- Due Diligence is your responsibility concerning a property, including acquiring and understanding all documentation, estimated operating costs, and assessment of risks.
- HOA, or Homeowners Associations, account for over 65% of all homes in the United States and they set the standards for their neighborhoods. Investing within a HOA community subjects you to their rules. You must understand these rules, have them in writing, and understand how they may help or hinder your investment. If you plan to rent a property governed by an HOA, include the HOA’s specific requirements in your rental agreement.
- Turnkey properties are already primed to move in.
- Inspection Contingency is a contractual term stipulating that the buyer will have the property inspected and review the resulting report before moving to discuss a sale price.
Ability to Calculate in the Long-Term
Real estate is a safe but long-term investment strategy. Only invest in a property after performing all due diligence and discerning a strategy to yield a profit.
Social Media
Having a developed presence on social media can let you network with other investors, which can highlight new potential investments, keep you informed about the industry, find renters for your property, and sell off your investments.
Soft Skills
You should be able to speak and write well to sustain investor relationships, negotiate, solve problems, and organize. A willingness to be educated and to adapt on the fly are huge assets for starting investors.
Credentials
Educate yourself on the industry and market. There is nothing wrong with undergoing certification to develop investment strategies, understand finance, and so on. These sorts of classes are generally open to all and often scheduled at times that are agreeable to the schedules of working professionals with busy lives.
short url:
