A Simple 4-Step Guide to Real Estate Investing
Investing in real estate is not for everyone but if you’re curious or like taking some risks, then real estate investment might be right for you. As a beginner, there are a lot of things to learn and potential pitfalls to avoid. Real estate can be a huge, complex game but if you have the time and willingness to learn, it can bring big rewards. And you’ll see how a realtor can play a big part in your success.
Here’s a simple 4-step guide for investing in real estate.
1. Choose Your Strategy
Your first step should be to decide exactly what you want to achieve by investing in real estate. Are you interested in owning several properties for rent? Are you planning to become a landlord? Or do you have the financial means to hire a property manager?
Perhaps flipping properties is more your style. Maybe you have a talent for finding affordable real estate with good bones and the creative vision to renovate it to make a profit. Or maybe you want to start slowly and test the waters by renting only part of your home, Airbnb style.
Whatever you choose, make sure you understand the pros and cons of each before jumping in. For instance, rental properties provide income and they appreciate but you have to manage tenants, tend to any repairs, and deal with any damages done to the property by tenants. And flipping properties, although lucrative, is a riskier option. It requires a lot more experience and knowledge of the market and the means to renovate and cover costs while the property is vacant.
2. Research Markets
Don’t even consider investing in real estate without doing proper research on the housing market. Market trends are key factors in determining whether or not your investment will be a good one and how quickly you will benefit from it.
The real estate industry is based on cycles of supply and demand affected by economic trends. The best way to get an overall view of the market is to study past data along with the current trends. It’s a good idea to speak to an experienced realtor who can give you the best information about the market and valuable advice about where things might be going.
3. Learn About REITs
Real estate investment trusts (REITs) are a relatively safe way to invest in real estate. If you are feeling unsure about committing to something, REITs can be a good option for a more cautious or risk-averse investor.
REITs are essentially companies that own or finance income-producing real estate properties. They provide an investment opportunity, similar to a mutual fund, that allows you to invest in real estate assets without actually having to buy a rental property or manage it. Those properties earn rental income and appreciation and the REITs then pay out 90% of that to the shareholders in dividends.
Since investing in REITs is much less than a down payment and a mortgage, it’s a better option if you want to invest in real estate but have fewer savings or disposable income.
4. Don’t Jump in Alone
Investing in real estate can be daunting, especially for new investors. It’s best to surround yourself with professionals who know what they’re doing. You should get advice from experienced investors who can help guide you in the right direction. When it comes to market research, having a realtor you can rely on is a good idea.
You should also have people you can turn to for different needs you may have along the way. Depending on which investment strategy you choose, you may need a property manager, a lawyer specializing in real estate, a real estate agent, a home inspector, a general contractor, a plumber, or an electrician. These are just a few examples, there are more but you get the idea.
Build the right relationships with the right people for success in your real estate investment journey.