Real estate investing is a complicated field with a lot of money changing hands. If you’d like to expand your investment portfolio, real estate is a very popular way to do it. However, becoming a smart and successful real estate investor does not happen overnight. It takes a lot of dedication and determination to understand the keys to successful real estate investing. Before you buy your first apartment building and cash that first rent check, you need to do some research and understand exactly what you are getting into. Of course, like any other type of investment, the best way to avoid falling into any traps is learning from the experience of others. Do your homework and research and learn from previous real estate investors. Here are some of the best tips to follow and keep in mind in order to get yourself one step closer to becoming a smart real estate investor.
Step #1: Understand the Real Estate Market
- In order to start in real estate successfully, you should research the subject thoroughly and be familiar with how the market functions. There are multiple ways to invest in real estate, and you will need to evaluate your goals and finances to decide which option is best for you.
- In order to become a smart real estate investor and succeed in real estate investing, you need to identify your tolerance for risk. There are two main markets when dealing with real estate. These are the private and public markets. Any type of investing is risky to some extent, but each market has its own level of risk.
- Private real estate involves the purchase of an ownership interest in “real” as opposed to “personal” property. You or a property manager would then operate that property and you would earn money on rent paid by your tenants. This is a very direct way of investing in real estate because you are considered the owner and are responsible for the property.
- Public real estate involves purchasing shares of a publicly traded real estate company. Often these companies take the form of investment trusts. You buy shares on the market and are paid dividends as the trust collects rent and value from the multiple properties it owns. Because you only own shares in the company, you are not responsible for the real estate. This is a less direct approach to real estate investing.
3. Decide between equity and debt. Both the public and private markets operate on equity and debt. As a house investor, you pick which of those you would like to invest in. If you are investing in debt, you lend money to someone so that they can buy interest in a property. You earn money in the form of interest payments on a mortgage. If you are investing in equity, then you are investing in ownership of the property. This means you are assuming all responsibilities for the operation of the land and buildings.
4. Choose the real estate sector you want to invest in. The four sectors are public equity, public debt, private equity, and private debt. If you choose public equity, you will want to look at investment trusts. If you choose public debt, you should study mortgage securities, which are equivalent to investment trusts where various mortgages are pushed together to form a single investment. If you select private equity, then you will most likely be purchasing residential or commercial property and acting as a landlord. If you choose private debt, you will invest in private mortgages. A smart real estate investor makes smart choices.
5. Learn about real estate trading. This is a variation of private equity investing, also known as flipping. The goal is to purchase a property and then turn around and resell it at a higher price. These investors try to resell their properties as quickly as possible to minimize their costs of ownership. Most flippers will make no improvements to their properties, as they can be expensive and time-consuming. Instead, they bank on the real estate market being favorable to them so that they can resell their unchanged property at a profit. A longer-term flip will see the investor improving the property in an effort to increase its value on the market. This form of investment can be labor-intensive and involves significant costs. This real estate investor will own only one property at a time.
Step #2: Analyze Your Finances
- Examine your portfolio. Investing in real estate is usually viewed as a portfolio enhancer, an investment that complements stocks and bonds. Used as part of a larger investment plan, it can add stability to your income.
- Evaluate your assets. Real estate investment can require a significant amount of capital, even beyond the price of the purchase. Ask yourself if you can afford to keep your investment if the real estate market turns bad. A smart real estate investor must be ready to face any obstacle at any time.
- Know that flipping a house can get expensive. If you decide to go into real estate trading, you have to be prepared for the worst. In the year that it might take you to renovate and sell, the real estate market could take a dive and you’d be stuck with mortgage payments while you wait for it to sell. As stated before, in order to become a smart and successful real estate investor you need to study every move before making any.
Step #3: Assemble a Team
- Make a plan. Decide where and how you want to invest. Take your plan to an accountant or investment broker. Go over the plan with a financial planner. Make sure that everything is accounted for.
- Learn to rely on other people. A good real estate investor will not hesitate to count on the aid of other professionals in order to ensure that the entire process goes smoothly. The type of team you will need will differ depending on your investment.
- Work with a good real estate agent. If you want to invest in real estate, you’ll find it helpful to use an agent experienced in the field of investment properties. Find an agent who can help you shop for ideal investment properties. Discuss your goals and your investment plans. A good agent can show you properties that fit your investment strategy.
- Talk to mortgage brokers. As a real estate investor, your real estate agent should be able to recommend lenders. Talk to your local banks and credit unions about mortgage financing. Find out what the brokers, lenders, and banks can offer in terms of interest rates, closing costs and payment terms. Ask about your financing options and choose the mortgage that best fits your budget and investment strategy.
In the end becoming a real estate investor is not an impossible task. It just takes the correct knowledge and implementation. Be sure to check out Mashvisor for the latest tips and strategies on real estate investing.