If you are an upwardly mobile woman, working at a great job, or already on top of a successful career you might have started thinking about how you could put any extra money you have to good use. Of course, one the best ways to grow your wealth is to put your money to work via investments, and perhaps join the growing field of real estate investors.
Apart from investing in stocks, bonds, and precious metals – you may have thought about investing in real estate. After all, real estate is probably a more tangible investment than paper assets such as stocks and bonds. However, before you start buying up properties, here are three important tips for beginner real estate investors that could get you on a sure footing for investing in real estate.
3 top tips for beginner real estate investors
Investing in any kind of market does require a special skill set and market knowledge. There are various ways you can invest in the real estate market. The article elaborates on some simple yet useful ideas for real estate investors that can help you create a fortune. Follow the strategies below if you are looking to invest in real estate.
Learn the art of flipping
What’s stopping you from buying an asset, improving it, and then flipping it for financial gain? Also named wholesale investing, flipping is a type of activity in which real estate investors purchase a property, improve it, and sell it for profit. For example, you could buy a property and improve it by installing a cell tower. Many real estate investors today are missing out on significant rent revenue from wireless carriers simply because they don’t realize the proper ways to maximize income from their cell tower lease renewals or extensions in the smartphone era.
Although flipping an asset can be quite useful and profitable, if you lack the necessary skill set, it can become a sunk cost in no time. From having a strong real estate knowledge to financial expertise, flipping an asset also requires a bit of luck.
Owning a business comes with many risks. Like if you own a logistics company, getting an MC Number from the authorities can become quite complex. Instead of owning an asset or business, start a business, earn handsome profit by flipping it for 2 or 3 years of projections and move on.
Moreover, according to expert real estate investors; it is much more profitable to purchase and flip a commercial asset than any other. It is because the commercial property’s face value grows more swiftly than a residential one. But the risk involved in the process also increases.
Go for REITs
REITs or Real Estate Investment funds are collections of properties that are often considered as real estate assets. Having said that, REITs do have a tax status. Similar to mutual funds, REITs are a collection of properties. Mutual funds on the other hand simply are a collection of company stocks. Diversified into many types including the stable ones such as equity REITs or high-risk REITs such as a mortgage, these special kinds of funds are both somewhat useful.
Some of the advantages of using RFITs are:
It is quite easy for real estate investors to buy into a REIT fund. The buying process is somewhat similar to that of a mutual fund or a stock. One of the main advantages of using RFITs is that these funds can be diversified. You can easily invest the funds into buying multiple properties. This ability of RFIT reduces the risk. Moreover, the process of liquidation is owner-friendly. Unlike a real estate or rental property, the owner of the funds can sell whenever he likes. Lastly, the dividends earned through these funds can be converted to real income.
One of the major drawbacks of owning RFITs is that these funds offer low growth on the principal. It is because 90% of the profit is paid in dividends. The remaining 10% when reinvested acquire very low principal growth. Moreover, being a type of real estate fund, you cannot expect sudden growth in the investment. Secondly, in some cases, the collective taxes on the REIT dividends can become quite vexatious.
Renting the property might be the solution
For some, the sole definition of a real estate investment is to rent any property. To some extent, they are correct. One of the most secure and easy methods for real estate investors is to purchase the property and rent it out to long-time renters. But to get a long-term tenant is a tricky thing.
For this specific type of investment, you will be requiring long-term tenants. It is because the rental money will be used to cover any mortgage. The rental money received from the tenants will also be used to cover additional maintenance and other expenses such as insurance. Plus, the people interested in renting their property should be well aware of the market rental rates according to the property location.
Renting a property for the long term comes with many benefits like you will permanently receive a specific amount of money for some time. The rented property will act as a cash flow for you. Moreover, the rate of returns is much higher than investing in the stock market.
The biggest advantage of owning any real estate property is that the asset value of land never depreciates. This gives you an additional advantage over any other investment. Furthermore, you can always consult tax lawyers and advisors to deduct the insurance and interests on taxes.
Aside from the several benefits, renting a property also has some drawbacks like it becomes quite complex and hectic for the owner to manage a rental property. Taking care of every small task and dealing with stressful tenants can disturb the owner’s private life. Furthermore, if you want to own a rental property, you will be needing a significant amount of capital.
The bottom line:
Understanding the different ways, real estate can be a good investment. With the right skill set and market knowledge, real estate investors can make a fortune out of it. But before investing in the real estate market, make sure to follow your interests and financial goals.
