Real estate investing is one strategy for wealth expansion if you’re up for it. The best part is that you can own property through leverage after paying a portion of its total cost. Once you make the down payment and sign the papers, you already own the property. Afterward, you can gradually pay the balance depending on the terms of the sale. Another good thing here is that the down payment may be lower than what you think. Sometimes, you can get a deal to pay from 20% to 25% or even as low as 5% of the total cost. No matter what the terms are, real estate investment can offer high returns on investment.
However, before you invest in real estate, you should also know that there’re risks that may come up from one bad step you take. For instance, we usually advise beginners to use their money as a down payment if they want to buy a property. But if you must use loans, avoid those companies or lenders with questionable practices. Many of these lenders are dubious and can force you out of the industry with excessive exploitative terms and conditions. That’s why some people may tell you that the real estate market is more complicated than the stock market.
However, we still believe that you can make it if you follow the guidance of investment experts. So, let’s help you to invest smartly by explaining some of the options available out there in the industry. If you’re a new investor, you have to choose between buying a property and not buying a property. We’re are going to discuss these two options. Afterward, you can choose the best course of action for your plans.
To Own a Property
This option requires a huge amount of money which may come from your savings or lenders. Before making plans to buy a property, we believe you must have put some cash away for it. Well, some investors started with bank loans. But if you can raise the part payment, that will be great. If you can’t, borrow from a transparent source to avoid pitfalls. Like we pointed out earlier, leverage can help you to make a down payment and start developing the property. Once you get your initial investment cost, consider any of these options:
1. House Flipping
Did you know that many of those single-family homes and condos you admire were flipped? Don’t let the term confuse you at all. House flipping involves buying a house and fixing it up. You may find a property with good prospects and purchase it. Once you sign the paper, you invest little money into improving and updating it to the contemporary standard. Afterward, you sell it off for a profit.
This approach to property investment is simple and straightforward, but you still have to be careful. One of the keys to succeeding with your investment is to pay low for the property. If you achieve it, you can be sure of good returns. One thing we love about house flipping is that it can be a quicker way of making money. You can spend a few months on fixing the property and then offer it back to other investors. However, you need a good knowledge of home improvement and real estate because making a good profit often require patience and timing.
There’s still a risk on flipping. Sometimes, renovation costs may exceed your estimates, thereby increasing the cost of the property. In such a situation, you’ll spend time and also make little profit. So, think hard on this option or consult an expert before you flip.
2. Rental Properties.
This is one of the simplest ways of investing in a property and making high returns on investment. The process in this option is easy. All you need is to buy a property and either rent part or all of it. You’ll be the landlord, and your tenants will be paying rent to you every month or every year depending on the agreement. In many countries, landlords of commercial buildings take monthly payments while residential renters pay yearly.
Renting out your property can be a good source of retirement income.
As a landlord, you’ll be in charge of paying the maintenance cost, mortgage, taxes, and others. The practice is that the rent you charge should cover these expenses and still offer some profits. But, it’s best to ignore the profit first until after you’ve paid off the mortgage. Once you complete it, the rent becomes your profit. Also, make sure that the building is always in good condition to entice renters.
The risk here is that you may not receive your rents as at when due. Some tenants may owe you until you’re forced to quit them out of the property. Sometimes, the money for maintenance, insurance, and repairs may come out from your pocket. But the good news is that if you keep the property in good conditions, the value may appreciate over time. When you finally sell it off, you’ll make high returns.
3. Home Ownership
This is one smart way to invest in property if you want to play safe and gain in the long-term. All it takes is to buy and live in your house. It’s not the case of house flipping where you buy to resell. This is investing in a property to live in and maintain. You may be wondering how that will give you money. Well, this option will not increase your monthly earning, but it can be your long-term investment.
When you buy a house, maybe remodel it for your family, pay taxes, insure it and maintain it, the value for the house will rise above what you bought it. If peradventure you decide to sell off in the long run, you’ll make more gains than you thought possible.
4. Use Airbnb Lodging App
Do you know that you can make money through your property by providing lodging accommodations? Every investor aims to make money. If you’re going to buy a property and bear the inconveniences, why not boost your income through it.
Airbnb is an app that enables you to offer lodging accommodations on your property. Instead of passing through the hassles of renting out your property, you can keep guests instead. With this app, you can specify the vacancies you have, the number of people it can carry, when it is available and the type of guest you can accommodate. If you’re lucky to own a property around a vocational area, you’re in for some good returns. Don’t let your property lie empty when you can make money with it.
Investing Without a Property
Apart from outright buying of a property, there are other ways to invest in property for wealth expansion. Raising a down payment for a property can be very difficult, but it shouldn’t stop you from investing. Some of the options to explore in property investments are:
1. REITs (Real Estate Investment Trusts)
To avoid the demands of owning or renting out a property, you can consider this option. This trust is created by companies who buy properties for profit. These corporations may own the property, or they’ll fund properties that yield income. If you invest in these trusts, you will be receiving returns for your investment.
REITs focus on commercial and residential properties. Most of them engage in mortgage trading, while others are equity REITs.
As with other stocks, you can buy a real estate investment trust on major exchanges. Also, the rule under which these trusts operate is that 90% of the whole taxable profits belong to the shareholders. Through this option, you can invest in non-residential properties such as office buildings or shopping malls as an individual investor. The truth is that you can’t purchase these properties directly except you buy a trust. Also, this investment is liquid. Once you decide to cash out, you can do it without a realtor or transference of title.
But this is still an investment option with risks to the investor as well. REITs do not give the investors any room for decision making. Every decision on the property is solely the responsibility of the companies behind the trust. So, this option is not a complete real estate investment. But since the companies who run REITs don’t pay corporate tax, investors usually get their money.
2. Investing in Real Estate Mutual Funds
Here is another option you can consider for property investments. Funds are different from Trusts. While the former belongs to a company, the latter belongs to a group of investors who pool their funds together to invest in properties. In this type of investment, a manager will manage the investments instead of the parties who raised the money. One good thing about
real estate mutual fund is that it’s one way to diversify your portfolio. Also, you have the opportunity to choose between an income-oriented mutual fund and growth-oriented mutual fund.
As far as risk goes, mutual funds reduce the risks of real estate investment. But you should know that a risk that affects one of the investments will also affect others in the fund.
Buying a property can be financially demanding even as an investment. One smart way of investing in a property is by entering into a partnership agreement with another investor. If both of you can pool your resources together and buy one property, the costs and other requirements will become easy to bear.
Look for another individual with the same goals of investing in real estate and team up with him/her. You can divide the responsibilities and the down payment into two and invest. This way, you’re not the sole owner, but you have a right over the property. Also, you may only spend little time and money on the property depending on the partnership terms.
4. Investment Groups
Another way to make some returns out of properties is by joining a real estate investment group. The process follows a company which builds or buys rental condos or apartment blocks and puts them up for sale to investors. Once you buy an apartment, you’ve automatically become a member of the group.
If you’re up for it, you can own one or more units of the living space. However, the company behind the group will be in charge of managing the property, maintaining them, advertising any vacancy, and handling the tenants. Your contribution to the company is the percentage of the rent which you’ll allow them to cut for their services.
One good thing about joining a group is that the lease will be in your name, and during vacancies, the units will share the effect. This means that you’ll not only make money when there’re tenants in your apartment. But, even when no one is renting your space, there’ll still be some income for you.
The risk here is not much. One thing to note is that the group are also prone to fees. Also, if a private organization is behind it, investors may suffer from the deceit of bad managers.
How much will it Cost to Invest in a property
All these investment options require money. The amount may vary depending on the opportunity you want to utilize. When it comes to property investment, the amount of your disposable income will determine the options to utilize.
For instance, if you want to buy a house, you should know that the money will be higher. Apart from the down payment, you’ll spend money on updating it for resale or renting. Therefore, you should be budgeting from $10, 000, and above.
However, if you don’t have that kind of cash lying around, you can utilize other options such as REITs. You can start with as low as $500 and make some returns as a dividend. As for the others, you can start with $1000 to $2000 and kick start your real estate investment.
Tips on Property investment
Before you start investing in any property, there are few things you can do to get it right. The industry is lucrative yet demanding and risky. So, try to use these tips and guide your activities.
1. Do your research very well
One of the first things you should do is to spend time researching the property before committing your funds. Let’s say you’re planning to buy land and resell later, check the deed of the land thoroughly. Determine possible construction plans around the area, which may increase or reduce the value. Check if there’s a lien agreement somewhere before you pay and realize the deceit later. Ensure that there are no external factors that may rise tomorrow and turn your investment into dust.
2. Consider the expenses and plan for them
Before you invest in a property, determine what you’re going to spend on repairs, taxes, maintenance, utilities, etc. After checking these costs out, think hard on whether to use an agency or not. If not, make sure that the money you’ll pay for the property will cover the fees. Once you’ve started to collect rent, ensure that you keep some amounts aside for repairs and maybe insurance.
3. Buy the property with cash
The first thing an expert will tell you is to use your money for investments. Before buying any property, make sure that you’ve kept the money for both the down payment and the monthly mortgage payments. Don’t rely on the renters because they are unpredictable. If you have them, fine, but if you don’t, make sure there’s another source of money. Investment is for wealth expansion and not to create financial challenges. Therefore, get the best out of it by buying with cash.
4. Start Gradually
There’s no rush, you know? Take your time and gradually capture the market. Instead of taking on an investment you can’t handle, start small. You can even buy a house that has a basement, rent out it out but use the basement. Or, you can buy a duplex and rent one unit out while living in one. We know that many people loathe the idea of living with their tenant, but you can start from there and expand.
Investing in a property is not a bed of roses, but it can be rewarding as it is challenging. Many of the big shots in the industry today started from somewhere and grew to enviable heights. We’ve outlined the smart ways to invest in property and expect that you will choose the best one and kick start your dreams. Research, plan, and start small when investing to avoid pitfalls.