Investing in real estate can be lucrative, but with several factors, it takes careful preparation. Deciding when to spend and what to buy are the first moves, but some others still need to be assessed.
The first decision is how much you can afford to pay. Since real estate is a risky investment, make sure you don’t spend money you don’t have. The amount you decide depends on the property you buy, or the investment path you take.
It is strongly recommended that you draw up a financial plan and decide exactly what costs and the size of mortgage you need. When you have a simple path forward, pick the choice that best fits your needs.
In this Article:
For a Rental, Purchase a Residential
If you’re interested in investing in residential property and have enough time to devote to proper repairs and maintenance, becoming a landlord is a good choice. It means you have secured monthly profits as long as you have tenants.
Rentals are by far the most popular way people make steady real-estate money. Buying and renting commercial properties is also an option. But the advance costs are much higher and the management criteria more complex. A residential property is much easier to handle for new owners.
Bear in mind that although residential properties are legally passive assets, their owners need an active degree of involvement. This means you’ll need time and resources to do this job. Although many landlords perform repairs themselves, some outsource maintenance to independent firms.
If you decide on the above course of action, take into account the fees paid by these firms. Mercantile and multi-family property maintenance charges typically vary from 4% to 12% of gross property rent. But it is not unusual for these figures to drop to 3% or rise to 15%. And, in some cases, particularly for larger locations, companies can charge flat monthly fees.
Prioritize On Flipping Real Estate
If you prefer owning your own house, but want to avoid renting it out, flipping might be perfect. The number of households flipped during 2019 constituted 6.2 percent of the year’s U.S. home sales, an eight-year high. It was a 5.8% increase in all home sales year before and 5.7% from 2017.
Flipping real estate’s highest recommendation is that it will see you get sizable returns in a very short time. You can purchase undervalued residential properties, renovate them, and sell at a price that can cover your initial investments, refurbishment costs, and make a profit.
Also, skipping the renovation portion entirely and just waiting for markets to change is an option, but the houses would need to be in a better shape to do this.
If such a type of investment property arrives with too much admin, you can explore other options.
Think about Real Estate Investment Trusts.
Putting your money into a REIT is not unlike funding stock. As an owner, a company or trust buying property will receive cash. You’ll get a slice of the dividends as appreciated. REITs are bought and sold on several of the world’s largest stock exchanges, making this form of investment relatively common.
This is a great entrance into the commercial real estate world, with potentially high yield. Corporations pay their owners at least 90% of their profits from their assets as dividends. And your outlay is liquid, which ensures you can sell your shares at any point without having to fight the sales process. Plus, the trust performs all management duties on your behalf, so it’s even less time and hard work.
Join the Real Estate Investment Group
Investment Groups are yet another way to really get into real estate without the additional demands tenants have to contend with. Consistent investors pool capital and buy residential properties, mostly apartment buildings, through a larger corporation. This company then manages maintenance and lease issues for a portion of rental income. Such investment can be compared to a smaller-scale mutual fund.
Single buyers can buy individual units within larger multi-family units. In this situation, the party will become a legal entity, each member being a joint owner. Since vacancies are often a concern when it comes to rental units, many groups pool a percentage of rent so that everyone can always see money coming in, even though their unit is temporarily vacant.
Review Vacation Rentals That Are Short Term
If none of these options interest you, maybe short-term options are the way to go? Reports 2019 reported that Airbnb hosts averaged just over $900 a month. Of course, this depends on where you are located, how much you rent out your property, and the overall quality of your room or home. Any additional services you offer will also be considered.
The biggest attraction for this route is that you don’t need a massive amount of money to get started. And you’ll see capital flowing in much quicker than you would from conventional stock investment. It will also give you a better picture of whether or not you will manage tenants and the obligations that a landlord can carry.
Final Thoughts
As you can see, a real estate investment can be thrilling and lucrative. However, you must be able to meet the demands financially and functionally. You have plenty of choices to choose from, so start doing your research and you’ll soon be able to decide which course of action is correct.