Real estate investing involves the purchase, ownership, management, rental and/or sale of real estate for profit. Being a real estate investor isn’t always glamorous but it’s a great way to make your money work for you and build wealth over the long-haul. There are several ways to consider investing in real estate, buying properties with the intention of renting them to generate income,1031 Exchange or buy, fix, and flip to other buyers.
When considering investment options think about this, when you buy a stock, it simply sits in your brokerage account and, hopefully, increases in value. If you invest in a rental property, there are many responsibilities that come along with being a landlord. When the furnace stops working in the middle of the night, it's you who gets the phone call. If you have the skills and don't mind handyman work, this may not be barrier; otherwise, you may need a property manager which, of course, affects your profit.
The first and foremost attraction to real estate investing is cash flow, the money left over after all the bills are paid. Appreciation is another thing to consider but you can’t discount the fact that the real estate market fluctuates both ways. However; over time, values do climb higher. According to the U.S. Census Bureau, real estate has consistently increased in value from 1940 to 2006, then proceeded to dip and rebound from 2008 to 2010 and has been increasing overall.
Real estate is a powerful investment, but only if you do it right. You need to find good deals, buy in the right neighborhoods and prepare to treat the venture as a business and run it as such. Perhaps the biggest difference between a rental property and other investments is to consider your comfort and obligations you have to devote to caring for your investment. You should measure the amount of time required to deal with the investment, your time is the most valuable asset you have.
To simplify and understand the big picture of real estate investing, think about it terms of Monopoly. An experienced Monopoly player (and winner) will tell you the best possible way to make a return is to buy as many properties as you can. The same applies in real life; you must be willing to assume some level of risk to get started. Similar to Monopoly, start building your collection of properties and begin collecting that rent money ASAP. However, be sure that you have financial resources available for unexpected expenses and lost rental income during vacancy periods. Research and understand the rules and regulations in your town and state. Doing so may help you find investment opportunities that others don’t see and it will give you an edge in the marketplace. When you get started, think long-term, not just the immediate present. Just like Monopoly, it may appear best to buy utilities at first, but if you can obtain all the railroads, those train stations will be a larger return on your investment. And always consider location, location, location. While it might be tempting to purchase Baltic and Mediterranean Avenue, these properties aren’t beneficial in the long run. It’s unlikely to bankrupt a fellow player unless they are already on the path of financial ruin. Similar to the board game, search for properties located in areas that will maintain their value even during times of recession.
Where do you begin? Seek out an experience real estate agent with thorough experience of the market in your area. While there are ways to get started with borrowing the funds needed to purchase a property, it’s smarter to take the time to save the funds for the transaction; or, at the very least, save for a substantial down payment. You can also seek out multi-family properties where you can live in one unit and the rental income from other units cover the mortgage payment.
With all the real estate investing options available, the average person is going to get their first real estate ownership experience the traditional way, by purchasing a home. Take a look at your personal wealth, outright ownership of a home (without any debt against it) is one of the best investments a person can make.