How To Properly Invest In Real Estate

Invest In Rental Properties

If youâre looking to make a major commitment to investing in real estate, consider purchasing rental properties. Rentals can offer steady cash flow as well as the possibility of appreciation over time, but they are one of the most labor-intensive methods of real estate investing.

There are two main ways to make money with rental properties:

• Long-term rentals. These properties are generally designed to be rented for at least a year and in theory provide a steady monthly cash flow, though this depends on your tenants being reliable. You might buy a multi-unit property or a single-family home that you rent to others.
• Short-term rentals. These properties cater to rotating tenants whose stays might be as short as one night, like Airbnb. You might list your entire home or apartment when youâre away, or you could invest in a separate property meant only for short-term rentals.

While investing in real estate with rental properties offers greater profit potential, it also requires a great deal of effort on your part. You need to find and vet tenants, pay for ongoing maintenance, take care of repairs and deal with any other problems that arise.

You can reduce some of these headaches by hiring a property management company, but this will cut into your returns. When it comes to financing rental properties, the resources and low interest rates available to primary residences may not be available. This can make buying rental property more expensive.

Schedule Your Time & Prioritize Next Actions

Ive given you a LOT of information so far . But the point of this real estate investing 101 article is to help you get started as quickly as possible.

So, the point of Step #9 is to help you transfer all of this information into organized, effective action right away. First, Ill make recommendations for scheduling your time. Second, Ill talk about prioritizing next actions.

Is Real Estate Crowdfunding Risky

Compared to other forms of real estate investing, crowdfunding can be somewhat riskier. This is often because crowdfunding for real estate is relatively new. Moreover, some of the projects available may appear on crowdfunding sites because they were unable to source financing from more traditional means. Finally, many real estate crowdfunding platforms require investors’ money to be locked up for a period of several years, making it somewhat illiquid. Still, the top platforms boast annualized returns of between 2% and 20%, according to Investopedia research.

You May Like: You Invest 10000 In A Complete Portfolio

Consider The Risks Of Investing In Property

The housing market is constantly changing. Property prices go up and down, and the demand for rentals can fluctuate.

And as well as market trends, there can be problems with specific homes – especially important if youre investing directly in a single property. The cladding crisis means many homes have fallen in value over the past couple of years even as the market has soared, for example.

All that means if youre investing in property, you have to see it as a long-term investment of at least 10 years. That way, you should be able to ride out any storms, and perhaps sell when the market is good again.

If you overstretch yourself and then the market dips, you might struggle financially.

The best way to protect yourself is to spread the risk by having a mixture of investments including property. Do your research thoroughly before making any decisions and consider getting independent financial advice.

How To Determine A Good Rental Property

There are many criteria youll need to consider in your search for a good rental property in which to invest. If youre looking for a residential rental property such as a single-family residence or a small apartment complex you may want to focus your search within neighborhoods with homes appreciating in value, low crime rates, strong employment figures and well-rated schools.

But assuming you have narrowed your search for rental investments to a given area or even to a few specific properties, you should then run some basic calculations to get a better sense of how well those properties might be able to generate income for you.

Your goal, of course, will most likely be to find a rental property that generates positive cash-flow where the rents and any other income you earn on the property is greater than all expenses, including your mortgage payment, property management fee, property taxes , repairs, insurance, etc.

Imagine you were to purchase a four-unit apartment complex for $300,000, and you took on a $1,900 mortgage payment . You then hired a property management company for $150 to handle screening tenants and managing repair and maintenance issues. Further assume that ongoing maintenance work like landscaping for the apartment runs you another $200 and that for expenses you are responsible for on the property, such as some of the utilities and property insurance, cost an additional $500. Your total costs, then, come to $2,750 per month.

Recommended Reading: Best Private Reits To Invest In

Assess Your Risk Tolerance

Although every investment is different, each one has its unique risks. As an investor, your risk tolerance depends on your personal circumstances. That, in turn, will help you decide which investments to take on. Some are less volatile, like money market accounts, while others are more, like futures.

If you dont know how to navigate the risk of investing, consider ways to take strategic risks. You may have to reevaluate your emotions or revise your strategy.

However, one of the best ways to mitigate risk is to build a diversified portfolio. Trading in various assets with different risk levels will cushion you if one happens to fail. In addition, building a strong portfolio lays the foundation for understanding your unique overall approach to real estate investment and portfolios of property.

S To Getting Started In Property Investment

6 Aug 2020, 9:35am

Admit it, youve been thinking about investing in property.

Youve read the books, magazine articles and reports. And youve been religiously checking realestate.com.au for properties.

But when push comes to shove, you never follow through.

Dont worry, youre not alone. In fact, despite real estate being a national pastime, only 8.4% of Australians, or roughly 2.1 million people, owned an investment property, according to the Australian Tax Office.

But the reality is property investing isnt as difficult as its made out to be. Knowing what to do and what not to do is crucial, though.

And so, here are eight steps to invest in your first property.

Dont rule out property investment until youve done the numbers. Picture: realestate.com.au/buy

Search tool: Find new homes

You May Like: How To Invest In Dubai Real Estate

Online Real Estate Deals

• The taxes incurred by these investments can vary depending on exactly the kind of investment you make.
• Some investments are technically REITs and so will be treated according to that tax setup , while others may be debt or equity investments.
• In general, any income such as a cash distribution from these will be taxable in the year its received, while any tax on capital gains will be deferred until its realized.

Invest More In Lands Than Houses

Theres a popular saying that Land Appreciates and Houses Depreciate, this is quite true especially in Nigeria. Well explain with an example.

Lets assume you bought land and built a house or bought a house outright in Lekki, Lagos twenty years ago for 20 million Naira and its value now is 100 million Naira with a rental income averaging 2 million per year for the past 20 years, that means you have 40 million total rental income plus 100 million Naira if you choose to sell it now which sounds great to be honest.

Now lets assume you chose to buy lands only with your 20 million Naira. Assuming a plot of land sold for 5 million Naira back then, you would have purchased 4 plots of land. Land in Lekki now sells for between 50 to 100 million Naira, lets assume you sell your four plots of land at 50 million Naira, youll have 200 million Naira which is 60 million Naira more than you made from building the house.

Houses cost a lot of money to build which means saving for long and tying your capital down. They depreciate in value over the years because the materials used to build will deteriorate resulting in costly renovation.

On the other hand, many plots of land can be bought over the same time used to save up to build the house because you can get lands for lower prices in certain locations. Also, land will remain the same and appreciate in value as far as it is properly secured and in a good location.

Read Also: Mortgage Rates For Investment Property In California

Why Invest In Property

As the owner of a property, you stand to benefit from any rise in its value when it comes to selling, from the income it can generate if you rent to tenants and, of course, from the utility you get from living in or using it yourself

Interestingly, the attractiveness of property ownership is partly dependent on culture. In the UK, for example, individual ownership is fetishized: an Englishmans home is his castle. But in countries like France and Germany, the idea of someone not owning any real estate isnt unusual at all.

Purchase A Rental Property And Become A Landlord

If youre ready to step up to the next level, you might try your hand with a residential rental property such as a single-family home or a duplex. One of the bigger advantages of this kind of property is that you know the standards of the marketplace and the market may be easier to gauge, as opposed to commercial properties, such as a shopping center.

Another advantage is that it may take a lower investment to get started, for example, with a single-family house. You may be able to get into a property with $20,000 or $30,000 instead of the potentially hundreds of thousands required for a commercial property. You may be able to buy it even cheaper if youre able to find an attractive distressed property via a foreclosure.

Youll generally have to put up a sizable down payment to start, often as much as 30 percent of the purchase price. So that may be prohibitive if youre just starting out and dont have a huge bankroll yet. One way around this may be to buy a rental property in which you also live.

Another downside is that youll need to manage the property and make decisions as to what needs upgrading, for example. While owning property is considered a passive activity for tax purposes, it may end up being anything but passive as a landlord. And if a tenant ducks out on rent, you still have to come up with the monthly payments, lest you go into default on the loan.

How you make money: Capital appreciation, growing rents and equity over time, 1031 tax-free exchanges

Read Also: Best Investing App For College Students

Best Real Estate Crowdfunding Investment Platforms Of September 2022

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list ofour partnersandhere’s how we make money.

The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

Real estate crowdfunding has transformed the real estate investing landscape. Once reserved for only the most affluent investors, many crowdfunding platforms have significantly lowered the barrier to entry for this type of alternative investment.

Low account minimums, simple fee structures and clean user interfaces make it easier than ever to include real estate in a well-diversified portfolio. Its important to note that some real estate crowdfunding platforms, including some of our picks below, are open only to accredited investors.

What’s the difference between these platforms and REITs?

Real estate investments trusts are companies that own real estate, such as hotels, malls, shopping centers or rental properties. Publicly traded REITs can be purchased through a brokerage just like individual stocks or mutual funds.

What’s the difference between these platforms and REITs?

Expert Tips On How To Invest In Real Estate

Many aspiring investors look to reality TV to learn how to invest in real estate. While watching HGTV is certainly a great source of general information, it can also paint unrealistic portraits of the real estate investing profession. Instead, new investors should create a solid strategy.

The following list will outline some of the best real estate investing tips for beginners:

Don’t Miss: Vanguard Short Term Investment Grade Bond Fund

Research Your Options For Investing In Property

Property investment can be done in a variety of ways. You might decide to buy a home or commercial property directly, or you could put money in a property investment fund. Its worth taking the time to explore your options and decide which type of property investment suits your circumstances and needs.

The types of property investment you could go for include:

• Buying a new build to sell on

• Investing in property abroad

• Real estate investment trusts and other property investment funds

You can read more on these below.

Whichever type you go for, remember that investing in property can be rewarding but it is also risky, so its best not to invest more than you can afford to lose should the worst happen. Before investing, you should also make sure youve paid off any non-mortgage debts and you have an emergency fund that could cover at least three months of living costs in case something unexpected happens, such as losing your job.

Better Than An Educated Guess

One of the most critical factors when it comes to investing advice in real estate is to know your market.

However, a new building doesnt come with a track record of property price growth to help you make an informed decision when it comes to pricing.

And dont pay too much attention to what other inexperienced investors have already paid to buy into the complex most will have overpaid and lost out in the long term.

You May Like: Best Online Stock Investing Courses

Buying A Vacation Rental Property

Another way to invest in rental property is by buying and renting out a residence in a vacation destination.

But as exciting as the idea of owning a vacation rental can be, you need to understand the realities of such an investment and subject it to the same business calculations you would with any other rental investment.

One challenge to owning a vacation rental is that, because they will likely not be rented 100% of the year and in many cases only for a few months of the year your per-night or per-week rental rates will need to be high to keep your investment cash-flow positive for the year. .

Another thing you should consider when deciding whether or not a vacation rental is a smart investment for you are the expenses of owning such properties and these are often higher than they would be for comparable properties not in vacation hotspots. The cost of advertising your rental unit, for example, will almost certainly be high because it could take slick, elaborate ads to entice prospective vacationers.

Additionally, because your vacation property can be turning over much more frequently than would a standard residential rental, you could also need to spend more money per year on cleaning, replacing broken or missing items, insurance, etc.

For these reasons, vacation rentals can be among the most challenging types of rental properties for investors.

Create A Plan To Find Deals

Good deals dont just land in your lap. Finding good deals is more like a treasure hunt. You have to turn over dozens and dozens of stones before you find a hidden gem.

Periods like 2008 2011 during the Great Recession are the exception to this rule. The treasure hunt for real estate deals was much easier then. Warren Buffett in his 2016 letter to Berkshire Hathaway shareholders described this period nicely:

Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, its imperative that we rush outdoors carrying washtubs, not teaspoons.

We should always have our washtubs ready for periods when it rains gold. But what about the rest of the time? During normal economic times, you have to work hard and create a plan to bring good deals to you. And you have to stay disciplined with your investment criteria so that you dont succumb to the fever of a hot market.

You can learn the 17 methods I used to buy 33 deals in one year inside my popular course Real Estate Deal Finder (and get 30% off by using the coupon code THIRTYOFF-DF-REI101 at checkout.

My recommended plan to find real estate deals includes two sub-steps:

Also Check: Sites To Invest In Cryptocurrency

Decide Your Investment Property Criteria

Your investment property criteria tell you and others what it means to have a good investment. I actually recommend creating a written investment profile that you can share with potential partners, investors, and sources of leads like real estate agents.

Your written investment profile should include descriptions of two major categories:

Your target property will become clearer when you choose a niche within your overall market. A niche means you focus on one smaller segment of the entire market. I discussed that some in Step #3, but you can also explore your choice of a niche with my in-depth article The 35 Best Niches for Investing in Real Estate .

When youve chosen a niche , your basic target property description may look something like this:

Single family houses with 3 bedrooms and 2 baths in the 30263, 30265, & 30277 zip codes. Target full market price range is between $120,000 to $199,000. Ideal properties are on quiet, safe streets convenient to schools and shopping. Ideal properties also include a garage or other storage and a useable yard.

The second category on your investment profile is the ideal terms . I wrote a comprehensive guide called How to Run the Numbers For Rental Properties Back-of-the-Envelope Analysis. This will show you how to quickly determine the most important investment numbers for you.

The ideal terms you choose will depend on the choices youve made up to this point, but they could look something like this: