You’ve probably thought about it more than once. Maybe you love watching those TV shows about fixer-uppers or tiny houses. Maybe you dream about the passive income possibilities of real estate investing. But you haven’t taken your first step yet.
It seems daunting. Real estate is a big investment, and there are risks involved. Despite that, you’re intrigued. You’ve heard that there is lots of money to be made investing in real estate. In this article, we want to take away the mystery and anxiety about real estate investing and show you how you can get started.
What is Real Estate Investing?
Real estate refers to property, or land, and the buildings that are built on that property. When you invest, you put some money into land or buildings, with the end goal of making a profit.
There are many ways to achieve this goal. The most common and traditional way is to buy a property, either some land, a home, or a commercial piece of real estate, and hold on to it for a long time. Despite fluctuations in the real estate market, prices for properties generally go up over time. In this way, if you sell your property after several years, you’ll probably sell it for more than you bought it for.
But this is not the only way to make money with real estate investing. We’ll go into more details below, but first, let’s look at why real estate is a good investment.
Why Real Estate?
Real estate is always going to be in demand. People need places to live and work. In our western society, land and home ownership is highly valued. And the value of that land, and those homes and workspaces keeps rising as more and more people populate the planet, making that real estate a very good investment.
Any good investment produces passive income. And real estate can do this in several ways. Unlike investing in stocks or other entities, there are many options in how to produce income with real estate investing.
Finally, an investment in real estate is a solid investment in something real. The land you own is not going anywhere. It will always have value, so it will always be an asset for you besides any income you can create with that property.
What Kinds of Investments Can I Make?
Along with the traditional buy-and-hold investment strategy, another way to invest in real estate is to buy a property and rent part or all of it out to another user. This way, you’ll benefit from the value of the property increasing over time, but you’ll also be receiving regular income from the rents your users pay each month.
Owning rental property can take many forms. You can rent out rooms in your own home, either to long-term tenants or as a short-term rental, through a site like Airbnb. Or you can buy single- or multi-family homes and rent them out. You can even purchase a commercial building like a retail or office property and rent to commercial tenants.
Still another real estate investing strategy is to buy a property, improve it, and then sell it at a higher price. This is often referred to as “flipping” a property. This strategy requires a bit more sophistication. You’ll need to understand the real estate market where you are buying and selling and have access to reliable contractors who can help you keep your costs down and your profits up.
If you’re more timid, and you want to leave the decisions to more seasoned investors, you can start out by investing your capital in a REIT or a real estate investment trust. Your investment, along with those of many others, are used by investors to invest in commercial properties for profit. REITs tend to pay out big dividends to individual investors.
Similar to a REIT, there are several crowdsourcing sites where you can invest with others in specific real estate projects.
How Do I Make Money Investing in Real Estate?
We’ve covered some of the ways to make money: cashing in on the increased value of a property between the time you buy it and the time you sell it, and the possibility of collecting rents on the properties you own. But there are other ways to make money with real estate.
If you are a real estate investor, you are running a business, and all the business expenses are tax deductible. This lowers your tax obligation. You can deduct your office and operational expenses and any costs for improving or maintaining the properties you own. This can add up to big tax savings.
Depreciation is one of the trickier benefits of investment property ownership, but it’s an important one to understand because it can hugely affect your tax bill. Basically, because of normal wear and tear, a property is seen as losing some value every year. This is considered a loss by the IRS, and the amount of this loss can be deducted from your income. Consult a good tax person to get the finer details, but don’t forget this powerful way real estate investing can benefit your bottom line.
What’s the Best Way to Get Started?
Take a good look at how much money you can safely invest. Real estate investing, like any investment, does carry some risks. Consider starting small. If you’re not sure you would be a good landlord, start by renting out a room and see how it goes. If you want to get an idea of how it feels to invest, check out one of the crowdsourcing or REIT opportunities.
Study the strategies that are available: REITs, buy and hold, buy and rent, flip. Be honest about your temperament and the resources you have available to you. Then choose a way to get started that best fits your life.
Find a partner or mentor. Especially if you are considering a large investment, work with someone who knows the ropes.
Real estate investing can be a lot of fun and can be very profitable. Take the time you need to thoroughly investigate your investment options, and you’ll soon be on your way. Here at FlipOutAcademy, we are eager to help you get started.