Real estate is a great investment opportunity that enables investors to put their money to work and let it grow today so they can have more tomorrow. Throughout history, real estate has been among the safest investments while having potential gains at the same time. Although investing in real estate is a simple process with minimal risks, it is important you carry out a market analysis and understand the principles of real estate to avoid inconveniences and losses. In this post, we will discuss how to get started with real estate investing.
What Is Real Estate Investing?
Real estate investing involves the purchase, management, ownership, and rental (or sale) of real estate to generate profit.
How To Get Started With Real Estate Investing
Below are important tips that can guide starters on how to start their real estate investment;
1. Identify Your Financial Ability
It is important to understand your current financial stage because various real estate strategies will suit you better than others.
2. Choose A Suitable Real Estate Investment Strategy
An investment in real estate is a vehicle which people use to improve their financial status which enables them to move from one financial stage to the next one. After taking into consideration your financial picture, the next step in real estate investing is to identify and choose a real estate investment that will help improve your finances.
3. Pick Your Target Market
It is important you carry out a market analysis before picking a target market; this is because choosing the right market will make a big difference in the final results.
4. Choose Your Property Investment Criteria
Property investment criteria refer to a written profile that describes your real estate to your potential investors, partners, and real estate agents.
5. Build Your Team
Although in real estate investment you can operate without employees, you will need advisors and contractors who will offer services to you. It is practically impossible to run your real estate investment without a team. Networking with other real estate investors is an important strategy to help you find the right members for your team.
6. Choose Your Financing
Unlike other investments, in real estate, you can use financing to help you purchase a real estate property. The best financing that suit you normally depend on your financial situation.
7. Find A Good Deal
Finding a good deal for your real estate can be a challenging task. To get good deals for your investment, you need to create a good marketing plan that will enable you to reach a wider market.
Ways Used By Real Estate Investors To Make Money
Just like other investments the main aim of investing in real estate is to make a profit.
Below are some of the main ways which real estate investors use to make money;
1. Cash Flow Income
This investment involves buying a real estate property and operating it to generate cash (rent) from renting the property. Some real estate properties that tenants can use to generate cash flow incomes include;
- Rental houses
- Office buildings
- Car washes
- Storage units
- Apartment buildings
2. Appreciation Of Real Estate Property
Real estate appreciation occurs when the value of your property increases because of a change in the market. Predicting real estate appreciation is a difficult game and is even riskier than cash flow incomes. Factors that may lead to the appreciation of your real estate property may include;
- Upgrading your property
- When land around your property becomes scarce
- Construction of a major shopping center near your property
3. Income From Real Estate Ancillary Investment
Ancillary real estate investments may include a laundry machine in a rented apartment or a vending machine in office buildings that serve as mini-businesses inside a real estate investment. Ancillary investments can be a big source of income that enables you to generate money from a semi-captive customer collection.
4. Real Estate Related Income
This refers to income which is generated by real estate brokers by selling and buying land, and property managers who manage the daily operations of the real estate properties.
Benefits Of Investing In Real Estate
Real estate offers investors various benefits which other investors don’t enjoy. The main benefits that real estate investors enjoy include;
1. Control Over Your Investments
Investing in real estate enables you to enjoy increased control over your investments. For example, you can improve your property using creative ways and generate more revenue from your property. You can also acquire negotiating skills that will enable you to secure better deals for your property.
In real estate investment, investors can borrow funds to acquire a property which they can’t afford and enjoy the potential profits that come with the property. However, increased leverages come with increased risks.
3. Low Taxation
Real estate investors enjoy several tax benefits. Real estate profits are normally taxed lower than incomes. In addition, real estate investors can decrease the value of their property annually to decrease the tax basis of their investments.
Risk Associated With Investing In Real Estate
Just like other investments, real estate investments come with the risk of loss. Some risks associated with investing in real estate include;
1. Vacancies in your rental properties that may lead to a lack of income
2. A downturn in the market which reduces your equity
For many years, real estate investment has been a safe asset class for investors that protect your capital from inflation at the same time returning gains. However, the returns you get from your real estate investments must exceed your taxes, risks, and costs of operating the property.