Real estate investing is one of the best ways to make money throughout the year. However, investing in real estate becomes a particularly good option in the winter months. In the face of a slow real estate market, you will deal with less competition, encounter lower property prices, and work with more eager property sellers, which altogether means that you will be able to score a better deal.
But before you are ready to move, you need the answer to the question “How to invest money wisely in real estate?” Although real estate is a very safe and low-risk investment strategy with excellent potential for high return, you still have to proceed with care in order to become a successful real estate investor making lots of money in both the short and the long term.
To figure out how to invest money wisely in real estate in the winter as well as at any other time of the year, continue reading.
1. Choose the Best Real Estate Investment Strategy
The first step in the process of investing money in real estate in a profitable and successful manner is to select the right strategy. One of the most wonderful things about real estate investments is the endless options which you have. Unfortunately, this doesn’t mean that all of them are equally profitable and the right fit for everyone. Depending on your previous real estate experience, knowledge, personality, available time, and the efforts you are willing to put into this endeavor, you might be best off with fix and flip, buy and hold, real estate wholesaling, commercial real estate, or REITs.
However, there is one real estate investment strategy which offers an immense opportunity to make money in real estate to just about everyone, regardless of his/her background and expertise. Investing in rental properties is the answer to the question “How to invest money wisely in real estate?” for both beginner and experienced real estate investors.
Here are the main benefits of investing in rental properties:
- You make money in the short term: You can start renting out as soon as you buy an investment property and get it in a rentable state. The moment you find good tenants to live in your property, you will start receiving monthly rental income, which will quickly turn into a stable source of additional income for you. With rental properties, you get to make money from month one.
- You make money in the long term: Unlike fix and flip or real estate wholesaling, rental properties allow you to make money in the long run as well. Renting out combined with buy and hold means that you get to rent out your investment property until you decide to sell it. Once you sell your investment property, you should receive for it significantly more money than what you bought it for due to real estate appreciation. Natural appreciation happens in nearly all US housing markets, which simply means that despite cyclical fluctuations and temporary slowdowns, real estate property prices continue rising over time. So even without forcing appreciation on your property, its value will go up over the course of several years.
- Rental properties are low-risk investments: Since rental investment properties are tangible assets, you can’t lose everything overnight as might happen in the stock market. Even if your property is located in a market which has lost some value in the past couple of months, the local housing market is set to bounce back. Meanwhile, you just keep renting it out and making money in the short term.
If you are worried that tenants might damage your property and cause you a financial loss in that way, you are still on the safe side with rental properties. As long as you sign up for the right insurance, you will be protected against most foreseeable situations.
- You can choose the optimal rental strategy: If you invest in rental properties, you can decide on the way in which you rent them out. You can go for either a traditional (long-term) rental property or an Airbnb (short-term) rental property. You can select the optimal strategy depending on your location, the local short-term rental regulations, the rental demand, the average rental income from the two strategies, and the expected cash on cash return.
2. Put Together the Right Real Estate Investment Team
If you want to know how to invest money wisely in real estate, the next step is to put together a good team to support you along the way. There are a number of real estate professionals which you will need in order to succeed in real estate investing. These include:
- A real estate agent or broker to help you buy an investment property and sell it when the time comes;
- A real estate attorney to make sure your transaction is all good and to help you draft a good landlord-tenant rental agreement;
- An accountant to help you out with budgeting and taxes;
- A professional property manager if you want to enjoy passive income from your real estate property investment;
- A real estate investment partner if you don’t have enough money, time, experience, or knowledge to invest on your own. There are different partnerships for which you can go such as syndication or crowdfunding. You just have to make sure that the rights, responsibilities, and profit-sharing are all clearly stated, written down, and signed under before you even start.
As you see, you need a strong real estate network in order to know how to invest money wisely in real estate. Thus, you should start working on building a good network even before you are ready to put money down on a property. Start attending local real estate events, talking to other investors in your area, and connecting with agents. In this way, you will have the right resources when you need them. Real estate investing is not a one-man show.
3. Invest in the Best Location for Rental Properties
If you’ve already started doing research on real estate investing, you must have read one too many times that location, location, location are the three most important factors for the success of your real estate business endeavor. Even though this phrase has turned into a cliché, it’s actually accurate. The location of your rental property will dictate the property price, the optimal property type, the best rental strategy, the rental demand, your rental income, the occupancy rate, and last but not least your return on investment (regardless of whether you go for cap rate, cash on cash return, or rate of return).
In a sense, to know how to invest money wisely in real estate is to know where to buy investment properties in the US housing market. To choose the best real estate market at the city level, you will need to do some research to see where traditional and Airbnb rentals yield the highest return. Real estate blogs are an excellent source for this kind of information.
Once you’ve settled on a city, you can use a heat map analysis tool in addition to neighborhood analysis to choose the most profitable affordable neighborhood for your investment property. Keep in mind that the neighborhood will vary depending on the rental strategy you go for.
To find the best Airbnb rental properties in your neighborhood of choice, read Airbnb Rentals: Finding Income Properties Using a Heatmap.
4. Buy the Right Property Type
There are many types of properties – single family homes, townhomes, apartments, condos, multi family homes, etc. – and there isn’t just one type of property which makes for the best real estate investments. How to invest money wisely in the right property type depends on the local rental demand, property prices, your rental strategy, and your budget.
Once you’ve established how much money you can put down and how you will be financing your investment property and once you’ve chosen the market where you will invest in real estate, you have to conduct comparative market analysis to see what property type you can afford and what property type is most demanded by local renters.
However, performing CMA, a type of real estate market analysis, on your on is a very demanding and time-consuming process which will push down your competitiveness in the real estate business. Thus, you should join the scores of successful real estate investors making use of the rental property calculator to buy lucrative traditional and Airbnb investment properties. To try out Mashvisor’s investment property calculator, a must-have real estate investment tool, click here.
5. Find the Most Profitable Rental Property in Your Market
The final step to answering the question “How to invest money wisely in real estate?” is to learn how to buy the best rental property in the housing market of your choice. To remain competitive in the 21st century real estate business, you will once again need to use technology. A rental property calculator will conduct the investment property analysis for hundreds of properties for you, saving you lots of time, money, and efforts in your property search. With the help of predictive analytics, within a matter of minutes you will find all investment properties for sale within your budget in your location which meet your criteria (property type, rental strategy, rental income, cash on cash return, cap rate, occupancy rate, etc.).
Real estate investing is one of the top strategies to gain financial independence as long as you know how to invest money wisely in the industry. Indeed, making fast, smart, and profitable real estate investment decisions has never been easier due to the emergence of predictive analytics and the creation of the rental property calculator. These must-have real estate investment tools allow experienced and beginner investors to buy the best rental properties in top markets for investing.