How to Start Investing in Real Estate: 6 Important Tips
Real estate is a good way to invest your money and it’s a major investment choice for millionaires (and billionaires!). If you’re wondering if real estate is a good investment, the answer is yes.
Real estate investing offers a historically good rate of return without the volatility of stock and bond investing. Another good thing about buying real estate? It’s not that easy to liquidate.
While for some that’s a con, if you can’t cash out quickly, you’re less likely to sell on impulse. Many people lose money in the stock market when fear or greed drives them to a quick sell. It’s easier to stay put in real estate investments.
Are you wondering how to start investing in real estate? Keep reading for eight important real estate investing tips.
1. Invest in a Real Estate Investment Trust (REIT)
REITs are a solid way to get your foot in the door of real estate investing. A REIT is a company where investors pool their money. The money then goes toward a portfolio of properties.
The company makes money by renting, leasing, and selling properties. There are rules around how REITs operate including what type of assets they own and how they return dividends to the shareholders.
There are different types of REITs. Some invest in healthcare facilities or other infrastructure while others concentrate on mortgages and residential properties.
REITs offer a low-cost entry point for real estate investors.
2. Stocks, Mutual Funds, and Exchange-Traded Funds
Are you comfortable investing in the stock market? Real estate stocks, mutual funds, and exchange-traded funds (ETFs) are other ways of investing in real estate.
With real estate stocks, you can invest in all sorts of real-estate-related stocks such as homebuilders, construction companies, and home improvement suppliers. Mutual funds and ETFs offer portfolios of stocks so you can choose a fund or ETF that holds positions in real-estate investments.
Some examples include the SPDR S&P Homebuilders ETF, Innovative Industrial Properties, Inc., (IIPR), and STAG Industrial, Inc. (STAG).
3. Invest in Your Own Home
You may not think of the place you live as an investment but it’s a great way to get started in real estate investments. With your own home, you get the added benefit of a place to live.
Instead of paying a monthly rent that’s building up someone else’s real estate investments, save to invest in your own home. Your monthly mortgage payments help you build equity in your home.
Buying your own home is a good investment if the price is right, you plan to stay longer than five years, and you can lock in a great interest rate. As a borrower for an owner-occupied home, you’ll get a more favorable interest rate than someone borrowing for a renter-occupied property.
When you’re buying a home, pay attention to the market. If it’s a hot market with high prices and low inventory, wait until it cools down a bit. When you buy at the top of the market, if you do have to sell, you may lose money.
When investing in your own home, take into account all the costs when determining what you can afford. There’s ongoing home and property maintenance as well as property taxes. You’ll also need a sizeable down payment, especially if you want to avoid PMI costs.
4. Rent Out an Extra Room
This is one of the easiest ways to dip your toes in the real estate investment waters. It’s real estate investing for beginners.
Are you worried about laying out a chunk of money? Do you own your own home? If you’ve got an empty room or basement that’s collecting dust, consider renting it out.
You can take advantage of a site like Airbnb to help you pre-screen renters. If you’re not comfortable with different people coming in and out, advertise the room as a long-term rental.
Renting out an extra room can give you a little extra money to save up for buying a whole rental property which leads us to the next point…
5. Consider Purchasing a Rental Property
Once you get comfortable with being a landlord, it’s time to consider buying rental property. You can start small with a condo or jump right into an entire apartment building depending on your resources.
You can also invest in a single-family home to rent. Being a landlord isn’t for the faint of heart. You need to do lots of research before taking this step.
In the long run, rental properties are usually great investments, producing a monthly rental income and some cash flow. There are some neighborhood features to look for in investment properties. For instance, renters with small children look for a good school district.
You’ll have an easier time renting out your property if there’s nearby public transportation, grocery shopping, and major highways. Before you buy a rental property, spend some time in the neighborhood where you’re looking. If the area feels safe, convenient, and easy to navigate, chances are a potential renter will like it.
6. Flipping Real Estate
Flipping houses is one of the most difficult and risky options when it comes to real estate investments but the payoff is sometimes huge. If you don’t have a stomach for high-risk, flipping isn’t for you!
The idea behind house flipping is to buy low and sell high. Flippers look for properties in poor condition. They renovate and then sell them for much higher.
The problem with flipping is that it’s much harder than it sounds. If you’re not a construction expert and don’t have access to a great contractor, you could end up losing a lot of money. In today’s market with the cost of raw materials high, it’s tough doing a low-cost renovation.
Are you a contractor? Are you great at doing home renovations yourself? It’s possible you could make some good money flipping houses.
How to Start Investing in Real Estate
Are you wondering how to start investing in real estate? Try one or more of these tips! Before putting your money down on any investment, always do your due diligence and make sure the investment is legitimate.
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