In today’s world, there are countless ways to invest and let your money work for you. Buying real estate is a popular investment strategy but comes with its fair share of risks. Investing in property is a long-term commitment which requires time and attention to detail. Taking the proper steps and precautions when investing in real estate will allow you to profit from properties you own and avoid unnecessary issues that can arise when you are a landlord. Understanding different types of real estate investing and the financial implications related to them will allow you to successfully own and manage property in the long run.Verify your mortgage eligibility (Aug 16th, 2022)
Types of Real Estate Investments
There are many ways to enter the real estate investment market. Here are the most common types of investing. One of these investments are likely where most real estate investors begin.
- Home Ownership: This may be the most obvious way to invest in real estate. Maybe you have already taken this first step, or perhaps you have not yet purchased a home. Either way, owning your own home is an extremely effective way to begin learning about real estate investing. As you pay off your home, the value of the property becomes a part of your net worth, and as your primary residence you can take advantage of the huge tax breaks upon its sale.
- Rental Properties: Apart from home ownership owning rental properties and becoming a landlord is the best way to begin your real estate investment journey. Rental properties provide income through monthly rent paid by tenants. Additionally, rental properties can be sold in the future and produce a sizable profit if they appreciate over time. Owning these properties can be done on the side. Usually only taking a few hours a month of your time. A great way to test the waters of real estate investing while still working a regular job.
- House Flipping: You’ve seen the reality TV shows where a house that can barely stand on its own is turned into a glamorous modern-style property. While these depictions of house flipping are unrealistic, this is the general concept. Investors purchase a home and increase its value by making repairs, increasing aesthetic appeal, performing safety inspections, and doing anything else than can cost-effectively increase value. The investor then sells the property in a short period of time, hopefully making a profit that exceeds the costs of fixing the house.
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When purchasing real estate there are a variety of factors to consider which may indicate whether the investment is worth your time and will result in positive financial gain.
- Location: Location not only determines how the property will appreciate (or depreciate) over time, but it also determines how often you will be able to interact with the physical property. The closer a property is to you, the easier it will be to deal with issues that come up and deal with them face-to-face. Location plays the largest factor in a properties intrinsic value, but there are plenty of other factors to consider when you are considering a properties profitability. Just because the property is in a poor location doesn’t mean it won’t be profitable. Plenty of landlords get their start by acquiring properties in locations that may be described as less desirable. However, in the beginning, these are the only types of properties you will be able to afford.
- Buying with Cash vs. Financing: Buying with cash is always easier than financing a purchase. However, that is obviously much easier said than done for most investors getting their start. In most scenarios financing is the smartest option. By financing your purchase, you will be tying up less of your capital which will give you the opportunity acquire more properties. So, while your cash flow may not be as high while paying off each of the loans, all your properties are appreciating rather than just the one. Typically, you will need 20% of the properties value for the down payment to qualify for an investment loan. If you choose to finance a property, keep in mind current interest rates and other variables which will affect your payments.
- Market Conditions: It is always best to buy real estate when the market is down, and property values are low. Buying when the market is high is risky, and it is possible the property’s value will decrease in the future. Again, this is easier said than done. Real estate markets are rarely predictable, and while timing your purchase with a down market is ideal, making sure the properties financials are sound in either type of market is the most important factor to consider.
- Avoid Unexpected Expenses: Investment properties will have costs that arise throughout your ownership. It is important to perform due diligence and create an accurate estimate of how much a property will REALLY cost to own over its lifecycle. Getting a complete inspection done on your investment property is one of the most important preliminary steps you can take towards making a smart investment. In all likely hood there will be issues with the property you are purchasing. The more things you can learn about the property and accurately account for the better you can forecast the properties expenses. If your inspection reveals to many issues a smart investor knows when to walk away from a deal.
Anyone considering investing in real estate should consider what type of property they are looking to buy and their long-term strategy. Owning real estate can be very profitable and if done correctly can be less risky than traditional investments, but only if you take the time to weigh options and use your money wisely. The tips listed above will help you successfully navigate the process of buying property and avoid losing money due to hidden risks and lack of foresight. Be realistic in your expectations. As with any investment, real estate is not going to produce a large paycheck right away. Real estate can be lucrative in the long run, but for your first investment consider working with an agent who is experienced in all aspects of these types of investments.Verify your mortgage eligibility (Aug 16th, 2022)
Don’t Be Afraid to Ask For Help
Our team at Lawrence Family Properties, LLC are all experts in the real estate investing. In fact, we own many investment properties ourselves. With our wealth of knowledge and experience, we can assist you in in your real estate investment search. Along with our agents, our learning center is constantly being updated with all sorts of real estate investing advice and guides. If you think you are ready to put your money to work for you in the real estate world, give us a call, and give us a chance to show you how we can make your investing goals possible.