You may have heard that bonds and the stock market will make you rich like Warren Buffett. While the stock market definitely provides ways of getting rich, the truth of the matter is that there are fewer stock millionaires than to real estate millionaires. Real estate investing has even made more billionaires in the world than any other industry. We wrote this article to break down real estate investing so that even if you’re completely new to the concept, you can understand how to start taking steps so that you, too can eventually join the billionaire’s club.
What Is A Real Estate Investor?
A real estate investor is an individual who invests in the real estate sector. This can either be directly or indirectly. Active real estate investing is where an investor will evaluate a property, purchase it, make any necessary repairs or upgrades, then sell it to make a profit. A passive real estate investor is one who hires a real estate firm to help in the management and sale of the property.
There are various ways that a real estate investor can invest. They are:
- Basic rental properties
- Real estate investment groups
- Real estate trading
Rental Real Estate Investing
This is where the real estate investor will invest in a property for rental purposes. Here, he/she is considered a landlord. The landlord will pay for mortgages, costs, and taxes associated with maintaining the properties. The real estate investor earns a profit by charging more to cover the aforementioned costs. Alternatively, the investor can wait until the mortgage is paid before starting to make a profit.
Use Of Investment Groups
Investment groups such as mutual funds are most common. Investment groups enable investors to be property owners who are not burdened with the responsibility of maintaining the property. Once a property is acquired, the company does the advertising costs and maintenance. As a result, they take a percentage of the monthly rent.
Real Estate Trading
This form of real estate investing can also be known as flipping properties. This is where an investor will buy a property intending to sell it within a short time. This is normally 3 to 4 months. The properties bought are undervalued properties or those that are in hot market regions. Property flippers do not rehabilitate the property but sell it at a profit.
This real estate investing is where a trust uses investors’ money to buy and operate properties that are income generating. The good thing about this is that 90% of all taxable income must be paid out as dividends.
Is There A Need For Real Estate Investment?
Yes, from an entrepreneurial point of view, there is a need for real estate investing. There are several benefits that one can gain such as:
- High return on investment
- Net operating income
- Portfolio diversification
- Financial freedom
High Return On Investment
A high return on investment means that the capital gained is higher than the capital invested. One reason real estate investing has made many more millionaires than any other industry is the high ROI ratio. This is generally achieved when a property appreciates in value (through renovations or increased market value) and is sold at a profit.
Net Operating Income
Gains realized from the net operating income may seem inconsequential, but after time they can add up to significant amounts. This increases your wealth and as a result, you are on your way to financial freedom.
At least in the beginning stages of real estate investing, it’s wise to cut down on risk by diversifying your investments. One way of doing this is by becoming a landlord and earning a monthly income while seeking out other, perhaps larger, potential investments. This reduces risk in addition to creating leverage, and is a good way to gain experience in the industry.
If there is one thing that real estate investing is known for, it’s the ability to create financial freedom. This means being able to spend more time pursuing things that you’re passionate about, more time with friends and family, and less time feeling stressed about money or chained to a job you don’t like. Eventually, your investments will be doing most of the work for you.
How To Start Investing In Real Estate Today
Investing in real estate can be easy once you find your groove, but getting started can be difficult. Investing in real estate requires a plan so it can act as a roadmap for you. The following guide has been proven and tested to be efficient.
Know Your Pocket
This is the most crucial step. You must know how much you have and how much you will invest. Meet with a financial advisor and see where you stand. If you have debt, see what you can do about consolidation and create a goal for paying it off. This way, you will have a better foundation for an investment strategy.
Choose The Right Strategy
The strategy you choose will depend on your risk appetite and your capital. Do research. Talk with experienced real estate investors. Take workshops and attend seminars. Comparing strategies to your current situation and building goal timelines will help you understand the industry and your ability to fit within it better before you even make the leap to your first investment.
Real estate investing requires capital. If you have less capital, start by taking control over your finances. Set savings goals and hold yourself accountable for working toward them. Reduce any unnecessary expenditures as you try to increase your income. Important strategies to help you save include a live-in-flip strategy and a live-in-rent-later strategy. As you save, you can find the right non-real estate side hustle(s) to help you earn more, while strengthening the skills that will complement your future real estate investment business.
Pick The Right Market
After your house is in order and you have the capital, it is time to choose the right target market for your investments. A market analysis should determine the right target market. The target market should be secure, affordable, and with the amenities considered important in your county.
Determine Your Investment Property Criteria
This should be included in your investment portfolio. This will help you concentrate on a specific niche in your county. The investment profile should have a target property and the terms of service.
Build A Team
Real estate investing is not a one-man show. You need a team that is qualified, and that will help you succeed. Your team should be comprised of an inner circle, support circle, and service circle. This way, the entire process will be efficient.
Go Out And Become A Millionaire
Not overnight, of course – but this isn’t that much of an exaggeration. Once all the essentials are in place, it is time to go out and make your first deal. By taking it one step at a time, and consistently returning to your bottom line, the possibilities are endless and your earning potential, limitless.
Like all businesses, real estate investing is risky. We’ve given you a basic overview of what to consider when starting out on your journey, but it’s up to you to take the steps forward. If this is something you want to do, you owe it to yourself to make a plan. Get an expert opinion on your finances, set income and savings goals, and make real estate investment research part of your daily or weekly routine. The more you know, the easier it will become – and one day you could find yourself with total financial freedom!