Back in the day, land owners were the elite, the gentry, the only people who “mattered” in society. Land owners had complete control over the lives of villagers and farmers who lived on their property. Land owners had a voice in government. The amount of land they owned determined their value and their influence.
The world has changed since then, but owning real estate is still an empowering way to live; a secure investment that can provide for you and your family far into the future. Paying rent to someone else provides you with little more than a defined period of time with shelter. When you own property, though, every mortgage payment is an investment in your life, and every increase in property value is money in your pocket.
“Invest” can be a scary word, especially if you’ve never attempted it before. And real estate? You may think you need to know a lot to succeed in real estate investing, but it may be simpler than you imagine. Real estate ownership can be big or small, simple or complex, hands-on or passive, and the earnings are usually much better than stock market or other traditional investments.
As our economy fluctuates, and as the future seems increasingly uncertain, planning for your future is more important than ever. Saving is no longer enough – you need an investment portfolio. You may think hiring a financial planner is the best or only way to go, but there’s something important about real estate investing that those guys won’t tell you. When real estate value goes up, the value of the whole property increases. So even though you’ve only invested 20 or 30 percent of the value, your earnings are much larger. Say you buy a $250,000 house with 20% down, or an investment of $50,000. In a year, the house’s value goes up 5%. You didn’t just earn 5% of $50,000 or $2,500. You earned 5% of $250,000, or $12,500. In effect, your net increase is 25%. No financial planner is going to offer you that kind of return on your investment. And on top of that, you won’t pay income tax (or capital gains tax) until you sell the property.
There are some things to consider before you decide to invest, though. One is the old adage, it takes money to make money. It may be tempting to borrow money for investing, but the risks there can be enormous. Better to live within your means, set aside a percentage every month until you have a nice little nest egg, then look to strategic investing.
You’ll want to consider your reason for investing. Are you looking for residential or commercial property? Will you live on it or rent it out? Are you someone who likes to fix and improve things yourself, or do you prefer to hire someone to do the physical work? Do you plan to keep the property long term, or flip it (that is, improve it and resell quickly)? It’s important to know your reasons and goals before you choose a property, especially the time period for your investment. There are companies that can help you select property, manage it for you, rent it out, collect payments, and perform maintenance. Know whether doing that all yourself is worth saving the fees, or whether your freedom and peace of mind are worth the cost of professional support.
Once you have funds to invest and you’ve defined your reasons and goals, you’re ready to start looking into properties. You may want to do some research on property values, rental rates, and market trends. Is there a perfect little lot down the street that you’ve been dying to fix up? You might consider buying property somewhere else, where growth and rising prices are more likely. If you’re clear about your goals, choosing the right property can be fairly straightforward.
A real estate professional is almost always a wise next step. There are increasing numbers of pitfalls to be aware of, legal requirements, and details you need to have in writing. Skimping here can lead to big trouble down the road, so take it seriously. If your property will not be your own residence, your real estate agent can help you choose a property manager or publicize the rental availability for you.
Once you’ve gone through the process of determining whether you’re ready to invest in real estate, you’ll likely wonder what took you so long! Down payment in hand, goals clarified, professional support lined up, and you’re ready to make some money, build some security, assure your future, and enjoy the satisfaction of owning property.
This article has been contributed by our friends at CreditSoup.com.