Investing in real estate can be lucrative, but it is also expensive. Before you invest a significant amount of money, your choice to invest must be an educated, well-calculated risk. It is essential to be financially secure: you should have no debt, a hefty emergency fund, and a significant amount of money saved for retirement.
Common Forms of Real Estate Investment
REIT – Real Estate Investment Trust
A Real Estate Investment Trust, better known as a REIT, provides opportunities for people to invest in real estate without having to own a property. It is a far-lower risk investment than owning a property to either profit from or improve to sell for a profit. Like a mutual fund, it uses an often large number of investors to pool their money together and focuses on a specific form of real estate. Publicly traded REITs are available, and you can do your research to find relatively low-risk ones.
Owning Properties for Rent
Renting out apartments, houses, and buildings for businesses is a highly profitable business, though it can be costly to enter.
Renting out the basement of your home, or the guest house on your property are common ways that ordinary people profit from their property. Airbnb is part of this as well.
If you have the funding to purchase apartment buildings or complexes, you could receive hundreds of thousands or even millions of dollars of revenue from people’s rent each month.
Purchasing such properties requires lots of capital, and managing them is complicated and expensive, so it is not recommended for the new investor. To provide a list of basic expenses, owners of an apartment complex will have to pay for maintenance staff, landscaping services, trash pickup, leasing agents, an office, and any amenities the community may come with, such as a pool or a gym.
Flipping Houses
Have you ever seen HGTV’s Flip or Flop or Fixer Upper? Purchasing individual properties such as homes or offices to renovate and then sell for profit is a form of real estate investment, but it’s not as easy as the shows make it appear.
It is important to be cautious with purchasing homes to flip: the profit margin can be slim, especially with unexpected problems that may require costly fixes. Unless you are an electrician, plumber, HVAC technician, carpenter, and interior designer, you will need to pay contractors to do most of the work.
After the house is ready, you will need to work with a real estate agent to sell it. Once everyone gets paid, not including yourself, the profit may not be what you had hoped for. A general goal is usually to make between $20,000 to $30,000 profit on each flip. To make a good living, many professional home flippers are working on over a dozen homes at any given time.
If you decide you want to go into house flipping, it is best to begin by partnering financially with an experienced flipper who has a track record of profit.
What Else Should You Know Before Investing?
Investing in real estate needs to be a calculated risk, so being well-informed of the process is vital to your chances of success.
Which experts to speak to.
There are numerous experts in a variety of fields that you will need to develop close relationships with to help you achieve your goals. These individuals should be local to where you seek to invest, experienced, and highly knowledgable in the real estate field.
In any location in the United States, property owners have to pay property taxes. Some states or localities have much higher or lower property taxes, so speaking with a tax expert to become aware of how local and state taxes will affect your investments is vital. Finance and Investment professionals are also critical to advise you on how to manage your assets. It is essential that you are also connected with experienced, highly-aware local real estate agents who are familiar with the history of the market, future trends, and know what good and bad opportunities for investment there are.
If you decide to invest in local property rather than funds, it is also highly valuable to be connected with experienced home inspectors and construction professionals who can provide you with reliable, high-quality work at a reasonable price.
What you should be aware of.
To make informed decisions about investing in real estate, it is vital to be aware of the current and predicted future state of the real estate market where you intend to invest. You should know what times of the year are better or worse for selling or purchasing property, how much demand there is, and what kind of people are buying properties.
Be aware of what property buyers have to spend and what they look for in a residential or commercial property to purchase. It is also crucial to understand local and regional migration trends to know how they affect supply and demand.
If you choose to invest in REIT funds rather than individual properties, research the market to learn which funds have track records of growth. Before making a decision, consider if you are willing to invest in high-risk funds with a high potential for growth, or prefer funds that have a lower potential for growth but are lower-risk.
SL Companies, Inc. is a mergers and acquisitions firm managing and deploying capital to develop businesses and real estate. Learn more about our services here!
