Real estate investing is one of the most profitable businesses. Buying and owning a property investment is both satisfying and lucrative and it is thought that real estate helps people build wealth more consistently than other forms of assets. However, too often the investment involved is a big one which means the stakes are higher if you don’t do it right. Property investments are complex so taking time to learn about the ins and outs of real estate is crucial before jumping right into them.
If you’re thinking of investing in real estate, here are some important facts that you should know:
Your Home Is Your First Investment
A house is considered an investment because there is a possibility of it turning into a profitable source of income. For example, you can rent it out or convert it into a vacation rental. Even if you are currently living in your home, you can rent a room for added income. Of course, you have to update your home to attract tenants. Home renovations and upgrades can be expensive. Good thing there are online personal loans for home improvement if you lack enough savings for your home projects.
Successful Investing Starts with Planning
Many people think that investing in real estate starts with buying a great property in a great location. While it may be tempting to acquire a property that meets your budget, if you want to build wealth through real estate, you have to create a good plan. What are your goals? Where do you want to end up? What particular aspects of property investment do you intend to focus on? What type of property do you want to buy so you can meet your income goals? Create a thoughtful plan of what you want your real estate journey to be like and write down the actions you need to take.
Real Estate Return Doesn’t Happen Overnight
From buying a property to upgrading it, selling it or finding tenants, the whole process of turning real estate into a profitable business can take some time. Like any other profession, it takes time, dedication, and commitment to understanding how real estate investment works and what strategies to use in order to succeed.
All Forms of Property Investment Require Funding
Unless you will pay for the property with hard cold cash, investing in real estate requires funding. While some buyers pay cash, others choose to pay a deposit and others use financing services to fund their purchase. It is important to weigh all your financing options carefully. For instance, if you’re using a mortgage to fund a rental property, are you going with a fixed or variable interest rate? Are you taking a short or long-term payment plan? Take time comparing rates and loan offers so you can end up choosing the plan that best fits your financial circumstances.
There Are Many Ways to Earn Money from Property Investments
Aside from buying/selling properties or renting them out, there are other ways to earn from investing in real estate, such as:
- Flipping properties. This involves buying an investment property, upgrading its value through renovations, and then selling it at a higher price. Investors usually choose foreclosed properties as it allows them to put a higher mark-up.
- Managing properties. You can get a decent income from managing properties on behalf of owners. Property management includes a range of responsibilities such as collecting rent, ensuring that the property is well-maintained, finding and screening tenants, and supervising repair or improvement projects.
- Investing in Real Estate Investment Trusts (REITs). A REIT is a company that either owns or finances properties. Purchasing shares from REITs is a potentially profitable investment.
There Are Also Different Ways to Measure ROI
ROI is used to determine how well a property investment is performing. It is measured by dividing your total investment over your annual return. Generally, the lower the cost, the higher the ROI. Another metric used for measuring the success of a property investment is cash-on-cash return. It analyzes the performance of your asset while taking into account the debt. It is measured by dividing the net operating income with your total cash investment.
Investing in Properties Requires Cash Flow Analysis
Cash flow is the money left when expenses have been deducted from the total income. However, in real estate, cash flow analysis can be a little more complex. The thing is there are many costs to consider, such as the rental manager’s fee, insurances, counsel services, maintenance fees, corporate fees, and many others.
Related: Learn All About Real Estate Cash Flow Analysis in One Blog
There Are Various Factors Affecting Property Investments
In order to guarantee the success of property investing, there are several factors that have to be considered, such as an investment location, type of property (residential or commercial), housing rates, and economic factors. Look for an investment grade property – one that will continue to be in demand for a long, long time.
This article has been contributed by Emily Andrews.