Are you looking to break into the world of investing in real estate? Do you wonder which financial investment would be worth your while? If so, this article is perfect for you. We’ll show you 5 smart ways to start investing in real estate. We’ll also cover the different types of real estate markets and what common mistakes to avoid. Let’s get started:
Rental properties are one of the most common ways to invest in real estate. This method can be rewarding for people with hands-on management skills, especially if you have the patience to deal with tenants. It offers a consistent flow of monthly income, and many of your expenses will be tax deductible.
However it takes a lot of research and other secrets of real estate investors to spot a valuable deal. Besides, if you choose the right property and make specific upgrades, you could always resell it for a greater value. Although, you might have to spruce up the house if there’s a lot of wear and tear.
House flipping works a lot like how it does on television. Owners buy a house that needs minor to moderate cosmetic work, make the necessary upgrades, and sell it at a higher price later. A typical house flip can take three to four months, meaning you can flip more than one house in a year.
Some investors prefer this solution over managing a rental property because it doesn’t take long to see the rewards. However, it requires deep market research to avoid buying a money pit. And even then, there’s always the risk of the market cooling without warning.
Online Real Estate Platforms
Capitalize on technology by taking your investments online. Several web-based real estate platforms allow investors to join real estate projects with lower risks. More so, you don’t have to be in charge of what assets the platform buys and sells.
Often, a management fee goes towards seasoned investors making such crucial decisions. This solution works based on crowdfunding, which allows owners to diversify and spread their risk. However, some platforms might have liquidity issues. For instance, there might be a fine for withdrawing your money too early.
Real Estate Investment Trusts
REITs are pretty standard amongst retirees because they offer the dependability of real estate without the operational risk. Investors buy REITs like stocks from corporations that provide them in exchange for monthly dividends.
Hence, they’re a solid investment plan for people requiring a less capital-intensive venture with low-risk tolerance. They’re also relatively easy to liquidate. However, investors cannot build equity like rental property owners.
Real Estate Investment Group
A real estate investment group typically consists of multiple partners pooling resources to invest in real estate projects. These could include buying multi-use or multi-family properties and flipping houses. It’s essential to note that they’re not the same as REITs and thus form a different class of their own.
At the end of the month, each partner gets a share of the proceeds. However, poor management and high vacancy rates could make the venture less profitable.
3 Investment Markets Investors Can Choose From
Investors usually refer to the primary market as a gateway market. They typically include places with high population size, GDP, and housing prices. For example, cities like San Francisco, Boston, and Los Angeles are primary markets.
An alternative term for a secondary market is a magnet market. They’re characterized as a hub for real estate development and emerging neighborhoods. In other words, secondary markets are properties within areas on the rise. Examples would include cities like Nashville, Charlotte, and Denver. If you need additional guidance, Professional Property Management of Northern Virginia can help your rental business succeed in such a market.
Finally, a tertiary market is an urban area that’s too small to be a primary or secondary market. It’s easy to spot these areas at the edge of larger markets, hence the term periphery market. Examples are Colorado Springs and Sacramento.
3 Common New Investor Mistakes to Avoid
Not Having the Right Mindset
One of the new investors’ biggest mistakes when going into real estate is heading in with the wrong mindset. For many newbies, owning a rental property seems like a fast track to financial freedom and success. Thus, people with such perspectives are often in for a rude awakening when reality comes knocking.
After all, keeping up with mortgage payments, repairs, and other bills can be exhausting. An excellent way to think about investing in rental properties is to think of it as a marathon instead of a sprint.
Not Analyzing the Right Data
Another issue that often faces newbies is that they don’t analyze the right data. This problem often stems from not understanding the local market correctly. For instance, you might buy an SFU because they generally tend to attract more tenants. However, if you purchase such a property where condos are in high demand or have a low vacancy rate, you’re bound to make a bad investment.
More so, it can also be accessible for new investors to make crucial decisions with emotions rather than hard facts. Without experience, it’s easy to let FOMO, fear, or excitement cloud impair your judgment.
Not Asking for Help
Finally, a common mistake newbies make is thinking they can do it alone. Managing a rental property requires a lot of work, and it’s almost impossible for any landlord to run one alone. Even if they somehow managed, it would mean sacrificing time to learn and execute such tasks.
Thus, the best road to success lies in delegating. Some tasks you can outsource for greater efficiency include leasing your rental, fixing problems, and avoiding legal hiccups. These jobs would be much better if they were tackled by a real estate agent, service person, and real estate lawyer, respectfully.
Is Investing in Real Estate for You?
Investing in real estate is a long-term journey that requires a lot of planning and foresight. While no one has it all figured out, some methods are recommended because they are tested and trusted. For newbies, it would primarily be helpful to stick to the guidebook before dipping your toes in a bigger pool. To make it easier, we’ve highlighted these proven methods in our top 5 smart ways to start investing in real estate.