Real estate is a long-term commitment, but the benefits it brings makes the effort totally worth it. It’s a great asset, with steady cash flow and the ability to profit through appreciation. Investing in real estate is a great way to make money, but if you want to maximize your return on investment, you need to do it smartly. So, if you’re thinking of investing in real estate, use the following strategies.
House Hacking
House hacking means occupying the property you invested in. You can rent out some of the rooms or occupy one or more units if you have a multi-unit building. An investor will qualify for a residential loan with house hacking, even after buying up to four units. If you manage the property yourself, you learn a lot and you can use that experience for future property investments. If you don’t want to be the person everybody calls if they have the slightest leak, consider hiring a property manager.
REITs
REITs are real estate investment trusts, also considered mutual funds. These are companies with apartment buildings, offices, hotels, or retail spaces. When you’re not looking for regular income, but high dividends, go with REITs. Some REITs trade on an exchange which means they are publicly traded but others aren’t. So, they are a good investment, but they can be varied and complex. If you’re new to investing in real estate, consider brokerage firms and stick to publicly traded REITs only. You’ll need a brokerage account for investing in REITs.
Flipping
Flipping is simply investing in an underpriced building. Putting in then a little effort with fixes, repairs, and a little bit of renovation, and voila! A huge profit is awaiting after resale. You have seen this on TV, right? This strategy is aptly known as house flipping. However, in real life, this strategy is a little more difficult than it looks on TV. The risk is way greater, and the calculations required to know the amount for the fixes and renovations need to be accurate. If they are not, you are looking at a huge loss.
Another fisk in house flipping is the time you take for the repairs and renovation. The longer you hold it, the more money you need to pay for your mortgage. This will not matter if you are living in the house, or using the office space while rebuilding it. As long as you don’t mind a little dust (and most of your work is renovation rather than major fixes) then you are good to go.
Crowdfunding Platform
Many online platforms allow real estate developers to connect to interested investors. Investors finance various real estate projects while expecting monthly or quarterly distributions. It is a huge risk, of course, but what’s life without risk? That risk can sometimes turn into the best investments ever made.
Many of these platforms offer the best opportunities to their accredited members. Investors with good credit scores and great investment portfolios get these opportunities from Mogul review, for better access to investment opportunities on crowdfunding platforms. Crowdfunding platforms provide great opportunities. With many investors in there, all there’s left to do is find the property that’s worth investing in.
Check out the Area
The real estate business is all about location. Do your research well whenever you are deciding on making a real estate investment. Check the neighborhood, market value, and general area to get an idea of what you are getting. Research the crime rates, gyms in the vicinity, nearby schools and playgrounds, for residential units. Being in a prime location and the proximity to popular places are some of the factors if you are considering residential or vacation rentals. While you’re at it, it is also a good idea to check out your competitors there. It will let you determine how good the location of your property is.
Finances Involved in Invested Property
The best thing about property investment is that you can borrow the majority of the purchase price. Mostly, you’ll need 20 to 30% of the total purchase price. The mortgage of rental property is considered a commercial loan, even if it is a single-family residential building.
You can find lenders who try to make your life easy with financing solutions. Although beware, they mostly offer these at very high interest rates and with ‘hidden’ fees. Some of them even have prepayment penalties, which just make your life miserable if you want to refinance into a more affordable loan. If you plan to work with a lender, make sure you read and understand all their terms regarding fees, penalties, and interest. Additionally, try your best to get a reputable lender.
Protect Yourself
If you’re thinking of investing in more than one property, consider protecting yourself through an LLC. A limited liability company helps with risk management. Since investment brings risk with most decisions, it will help you if anything happens. The LLC will have ownership of the properties. If anything happens, you’ll not be considered personally responsible.
Manage your Investment Property
Buying the property is just the first step. For your investment to pay off, you’ll need to make an effort. You need to care about growing your gross rental income, rather than lowering your expenses from the beginning. As time passes, the building will need repairs or even replacements of roof or windows. Always remember that it will be more expensive later so, figure out your expenses in a way that you don’t delay those repairs and maintain them in a timely manner.
The best way to manage your investment property is to set a capital expenditure every month as a reserve. Put this in a separate account. This way, you’ll have the money to cover any expense that comes your way without touching your personal account.
Real estate investment serves you the best when you make the decisions strategically. You need to put in time, effort, and of course the most important of all, your money to get the best out of investing in real estate. If you’re just starting out, consider crowdfunding platforms, reputable real estate agents, or publicly traded REITs. Grow your network, understand the trends, and educate yourself about rental properties and investment.
Photo by Avi Waxman on Unsplash
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