A Beginner’s Guide to Real Estate Investing
Real estate investing is still one of the safest and most guaranteed ways to invest your money and get good returns. If done properly, it’s a great opportunity to increase your equity with new properties. And, as you own the asset (the building), it’s not such a risky investment, in addition to not losing value with annual inflation readjustments.
Real estate investing is something you do now to reap the benefits later; the profit isn’t immediate. It’s important to analyze the market to know if the investment will be good enough to cover its risks, taxes, and other costs of ownership of the property (including insurance). It’s currently a promising market with potential, but you need to know if it’s the right one for you. The consequences of a wrong investment can be financially disastrous.
Why Invest in Real Estate?
Investing in real estate can seem daunting, but it doesn’t have to be if done right. There are more advantages than disadvantages, among them:
- Cash Flow is Steady– The moment you have enough real estate to rent, you can generate a steady revenue stream to stay in business.
- Return is High– Real estate investing has lower risk and better returns compared to traditional stock markets. Although the earning potential is not the same, it’s not subject to the same volatility as the stock market.
- Safe Investment– Losses are rare, and long-term returns are usually positive. If you play it right, in time, most of your properties will have their value appreciated, and you can even resell and recover your investment.
- Tax Advantages in 2021– One of the best benefits is that the real estate market guarantees good tax exemptions, allowing investors to deduct several expenses from their taxes (mortgage interest, depreciation, property tax, etc.).
- Building Your Own Wealth– If you wonder how to build wealth, know that having a good real estate portfolio is a good start.
Like any business, real estate investing also has some cons you should consider: the initial investment may require a lot of available money (yours or borrowed) to pay for possible improvements to the building, and real estate is not a liquid investment that can be turned into cash quickly, if necessary.
How to Start
There are several ways to start investing in real estate immediately with little money, including Crowdfunding Real Estate Platforms or Real Estate Investment Trusts (REITs), which are public companies that sell shares and use these funds to buy and rent real estate assets.
The important thing is to be financially prepared since a property is a particularly expensive investment, which requires some funds for unexpected adaptations or repairs.
Then, you need to decide how you are going to invest. One of the most popular ways is to work with rentals—properties you acquire intending to rent to third parties for a long or short term. Although it’s one of the most laborious practices, rentals offer stable, monthly cash flow. For example, many investors in tourist cities are buying and renovating properties to rent on Airbnb.
You can also opt for so-called flipping properties. This is buying and renovating properties to resell them for a higher price. When you buy a house in an area that became valuable for one reason or another, or because a construction company intends to acquire the land to make a building, you win the jackpot.
Deciding the Right Type of Real Estate
The market also offers several types of real estate, each with its own ways of making money:
- Residential– Residential properties are houses for a single-family or buildings with residential units, such as condominiums. They are usually rented for long periods (at least one year), generating frequent revenue. A residential property in a valued or fashionable area is a guarantee of financial return.
- Commercial– These are units for offices, retail, and service providers, rented to companies that will exploit them commercially. A successful business can occupy your property for decades, paying rent religiously, but it must be in an appropriate location to function. There are more investment funds in commercial than residential properties.
- Industrial– Industrial spaces, such as warehouses and manufacturing sites, can be used by factories for their operational or storage processes. They usually have a single tenant for a long time, but the space needs to be adapted to a specific type of activity, affecting the property structure (and value) forever.
What Makes a Good Real Estate Investment
Once you’ve decided on the type of property and how you’re going to explore it, you need to put in place some strategies that can help you value your investment. For example, you need to know the market in which you are investing. Talk to real estate agents to determine which areas are most valued or those with the possibility of future valuation. Identify who lives in these areas and why they do it. Analyze the history of real estate prices and try to find bargains.
How do you know when you’ve found the right place? First, consider the area/neighborhood. Some details that value properties are the proximity to essential services, green spaces, and panoramic views. Certain neighborhoods also have, or gain, status, which values your investment. In the case of commercial or industrial properties, assess the proximity to large markets, transportation options, highways, and tax-free areas.
Finally, you must have the ability to understand and identify market trends and buy properties when they are low and resell them when they are high. Real estate markets fluctuate around trends, such as new buildings nearby or structures converted to become eco-friendly.
Real Estate is a Long-Term Investment
Although it can offer significant returns, real estate is a long-term investment that requires a lot of planning and attention, considering that the costs and risks are high.
Buying properties to rent or resell appears to be easy business since everyone needs a place to live or work, but be aware that your properties may be empty for a while (especially in these post-pandemic, readjustment times) without offering liquidity in the short term.
The benefits are undeniable; real estate is an asset with constant demand, and you can be very rewarded if you know how to identify trends. A creative person with a long-term vision can do very well in this market.