How To Start Investing in Real Estate: Tips and Considerations for Beginners
You’ll be hard-pressed to find a financial professional that doesn’t consider real estate a good investment path. Other than a few instances like the 2008 crash, real estate is a relatively popular way for people to make their money work for them.
Yet, getting into real estate investing isn’t very easy. It requires careful consideration and a lot of work to make sure your investment pays out. For beginners, the effort required to get into the market might dissuade them from even considering it. However, with the right guidance and strategy, it’s possible for people to get into the real estate investing world.
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What Is Real Estate Investment?
In the simplest terms, investing in real estate involves buying properties with the purpose of flipping them to sell or renting them out, to ultimately turn a profit. The real estate itself can vary, including residential, commercial, industrial, and even purchasing undeveloped land. Then, investors either try to rent out the land and make money back overtime, or sell the real estate later for a large payout.
It’s important to note that buying your first home can sometimes be a good investment, but isn’t really what people mean when talking about “real estate investing.” Real estate investing is purchasing additional properties outside of where you live, whether it’s another house to rent out or a strip mall for businesses to buy or rent from you.
Is Real Estate a Good Investment?
Just like every financial decision, there is no guarantee your money will be safe, or that the investment will pay out. With real estate investing, it’s very much a case-by-case scenario. Many factors can influence success, including: the area’s housing market, property costs and taxes, and what kind of real estate investment you make. Some places with a high competitive market might be more risky for an investment than others.
Risks of Investing in Real Estate
There is risk when it comes to investing in real estate. You could lose out on all the money you’ve put into the investment, or come out just breaking even.
Common risks in the real estate investment world include:
- buying a property that requires too much maintenance to become profitable
- getting bad tenants
- not able to secure tenants for rentals
- the housing market crashing
- too much competition that are keeping prices too low
Why Invest in Real Estate: Benefits
Real estate investments, if done strategically, can come with a ton of benefits. Unlike other investments, real estate will always be a necessary commodity — after all, people have to live and work somewhere. Because of that, with the proper considerations and planning, investing in real estate has the potential to allow for a regular flow of passive-income. That is, assuming you can keep your properties well-maintained and filled with tenants.
Specific investments, like purchasing a rental, can be good, because you can get two different kinds of payouts; the first, collecting rent month to month, which should pay for the property and earn you a small profit. The second comes when you sell the property. If done correctly, you should walk away from the investment with a lot of extra money.
Ways to Invest in Real Estate
There are two main ways to get involved in real estate investment. Either you do the work of property-purchasing yourself and personally own the property, or trust your funds with a real estate investing company.
Active Real Estate Investing
Getting actively involved in real estate investing takes a lot of time and effort. This is the process of physically buying and own real estate and then maintaining it and growing its value.
While owning a home is a type investment, it likely will not turn the same level of profit that owning multiple homes, businesses, or plots of land, could provide for you in the long term. Buying and selling rental homes and space, house flipping, and short term rentals like vacation homes or Airbnb are all ways of active real estate investing. Even buying a plot of land to sell later to a land developer is a type of active real estate investing.
Passive Real Estate Investing
If you don’t want to do all the work of active investing, or you lack the funds to do it, there is another way to invest in real estate. There are investment companies who specialize in investing others’ money into real estate purchases that pay out at a later date. Typically, these are larger purchases, where they pool many investments from different people together and buy massive amounts of real estate.
Passive real estate investments are ideal for those looking to diversify their financial portfolio, or who don’t have the means to get into active investments. There are major pros and cons to consider, however, before pursuing it. One pro is decreased risk to you, the investor, as the investing group or firm is filled with professionals that can avoid more risky investments and make sure you get your money. On the flip side however, that means your investment will pay out less, with some of the money your investment made going to pay the salaries of the firm.
When it comes to considering and investing in real estate, be patient and do your research. Even if you have others invest on your behalf, make sure you understand what kinds of investments they are making, how risky they are, and your expected payout. If you do want to get actively investing in real estate, be sure to budget out expenses and make sure you can pull it off.
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Ben Allen is a freelance content creator and digital marketer who believes in helping small businesses succeed. He spends his free time bragging about his two daughters, eating stuffed crust pizza, and playing video games.
This post was updated February 28, 2019. It was originally published November 7, 2018.