Investing in real estate has been in the news frequently because aside from it being a good investment option for people who have a low-risk appetite and into long term investing. It is also a good option for people who are looking for some investment vehicle for their retirement money.
While people are preferring the low-risk low reward investing in real estate, some have higher risk tolerance and go for high-risk investment such as house flipping. Some don’t have that much of knowledge in real estate but have made a fortune out of their investments in properties and real estate.
How To Become Become Successful in Real Estate Investing
As to how they have done it, we will not discuss it here, but the expert investors in real estate gave us the most important things to do before even thinking of investing in real estate. There are lots of experts who are helping beginning investors to duplicate their success with their investments and not to solely rely on luck. Under30Wealth wrote the most important things to do before getting involved in real estate investing. Check out their very informative article below.
7 Things to Know Before Investing in Real Estate
This will seem like a lop sided article because we’ve only listed 2 benefits of real estate investing below while listing 5 disadvantages. I want to reassure you that real estate is an excellent investment and there are actually many other benefits and reasons to invest including these 20 reasons in this article here that you can read.
In this article we are covering two additional major reasons why investing in real estate is a smart long term decision as well as showing you the negatives so that you are aware of what to watch out for also. Let’s get started!
2 Important Benefits of Investing in Real Estate
Reason #1: Portfolio Diversification
Real estate adds diversification to an investor’s portfolio so that they are not only invested in stocks, mutual funds, and bonds. Diversification spreads out risk and allows investors the chance to maximize returns when the different assets go through growth stages. When real estate is hot, the investors’ real estate investments will give a higher return to the investor than the other investment holdings, bringing up the value of the entire portfolio.
You can diversify to own real estate in two ways, but I’ll explain which is the best in a second. The first way and most simple way is buying the stock of Real Estate Investment Trust companies also known as REIT’s. If you visit your financial adviser and tell them you’d like to stick a portion of your investment funds into real estate, then this will likely be what he suggests.
Reason #2: Financial Leverage
Real estate investors are attracted to real estate because it allows them to use financial leverage to their property. Financial leverage, in simple terms, is the use of other people’s money and not using your own. You are “leveraging” someone else’s capital.
The finance industry makes debt capital readily available to most investors if you have a good credit score and prove you don’t need the money by showing them a healthy net worth and steady income. Lenders will typically be willing to provide up to 70% of the value of the home.
Leverage allows an investor to control more real estate using other people’s money than they could otherwise with just their own money. Leverage magnifies returns but can also magnify losses if things don’t go well for the investor. See full post here…
In an ideal situation, before starting to invest in real estate, you should have already diversified your portfolio. That means you are already exposed to other investment instruments such as bonds, stocks, mutual funds, among others.
By diversifying your investment, there’s only little chance for you to lose a huge amount of money when one of your investments suffers a loss. Also, having financial leverage could be beneficial for you as you begin investing in properties. Having financial leverage will allow you to borrow money from lending institutions such as banks to be used in your journey towards real estate investing. This leverage allows you to control more real estate investments using other people’s money.
Engelo Rumora of BiggerPockets also gives us some excellent tips every person must do before becoming an investor in real estate. It was a long, but very informative tips, so check them out below.
Do This BEFORE You Start Investing in Real Estate
I’ve said this so many times before: your network equals your net worth. Please never forget that!
Over the last five-plus years, I’ve spoken to many investors from all over the world. They ask me the same thing: “What do you think of this area? What do you think of this market? What do you think of this city?”
They’re all consumed with the online stats and demographics that they can see via a basic Google search. Put simply, I think that’s a bad way to approach investing in real estate.
Why You Need to Set Up a Real Estate Team BEFORE You Begin Investing
I have a saying that goes, “If you buy the best house on the best street in the best area that has the best capital growth projections, but your property manager is incompetent or a cheat, you’re going to lose money because they’re going to steal your rent or lose your rent because they are so incompetent.”
Therefore, it really doesn’t matter how good that market is, how much potential that area has for growth, or how good the deal is. If your contractors suck, they’re going to go over budget and you’re going to lose money anyway. This is why it’s very important that you first establish the right team before you start your real estate endeavors. Click here to read the rest of this post…
Therefore, it doesn’t matter how good that market is, how much potential that area has for growth, or how good the deal is. If your contractors suck, they’re going to go over budget and you’re going to lose money anyway. This is why it’s very important that you first establish the right team before you start your real estate endeavors.
Considering this your first time exposing yourself in real estate investing, it wouldn’t hurt at all to seek help from real estate experts. If possible, it is also recommended to establish your reliable team before you start investing. However, there are pros and cons in forming a team of real estate experts to help you as an investor, it is important to read both the pros and cons before considering this advice. Consider these very informative tips by DC Fawcett as your real estate investing guide.
Eight Things You Need To Know Before Buying Your First Investment Property
Although there are numerous examples of people who have earned themselves a fortune with real estate investment, real estate, like every other business, has many risks associated with it. Moreover, regardless of the type of property you are purchasing or whether you plan to rent or resell it afterward, investing in real estate requires a good amount of cash — which makes it critical to take extra measures to ensure profit on your investment or at least save yourself from a huge loss.
I’ve observed a shortage of property in good areas over the past few months. This lack of property creates an excellent opportunity for investment. However, it doesn’t mean that anybody can earn a fortunate by investing in real estate. You need to know a lot of things before buying your first investment property.
1. Don’t let your emotions play with you.
Most of the time when buying a home, people listen to their heart more than actually thinking about it logically, which is perfectly fine when it is the place where you will be living for many years of your life. But don’t let your emotions affect your decision when buying your first investment property. Think of it as purely a business investment and logically negotiate to get the best possible price.
Remember, the lower the price you get for a property, the better the odds that you will earn a higher profit from it.
2. Do your research.
Depending on the clients you are targeting, you need to do proper research before buying your first investment property. Make sure that the property is situated in a location that will attract the type of clients you hope to sell or rent to, that it will reach to the returns you are expecting and that it will appeal to the market.
3. Secure a down payment.
Unlike the 3% down payment on the house you are currently living in, you are going to require at least 20% down payment for buying your first investment property. This is because mortgage insurance is not applicable for investment properties. Moreover, investment properties require greater down payments than your regular building and have strict approval requirements. Keep in mind the expenses needed for the renovation before you pay your down payment.
Before investing your hard-earned money into real estate, there are certain things you must do in preparation, especially preparing your emotions from the risk associated with it. Aside from checking your emotions, a good amount of cash is also needed.
Real estate investing is a profitable investment, but with huge amount of risk as well if you’re not doing it right and you did not do enough preparations before starting. Follow the tips above and you’ll become successful real estate investor.
If you’re looking to buy a house as your first real estate investment, Dependable Homebuyers can help you find the best available deals in the housing market. Visit us now at https://www.dependablehomebuyers.com and let’s get started.
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