Investing in real estate is not for everyone, but if you are curious or like to take risks, real estate investing may be for you. As a beginner, there are many things to learn and potential pitfalls to avoid. Real estate can be a huge and complex game, but if you have the time and willingness to learn, it can bring great rewards. And you’ll see how a real estate agent can play an important role in your success.
Here’s a simple 4-step guide to investing in real estate.
1. Choose your strategy
The first step is to decide exactly what you want to achieve by investing in real estate. Do you want to own several rental properties? Do you intend to become a landlord? Or can you afford to hire a property manager?
Perhaps resale properties are more your style. Maybe you have the talent to find affordable properties with good structure and the creative vision to renovate them for profit. Or maybe you want to start small and test the waters by only renting out a portion of your home, Airbnb-style.
Whatever you choose, make sure you understand the pros and cons of each before you jump in. For example, rental properties provide income and appreciation, but you have to manage tenants, make repairs and deal with tenant damage. And resale properties, while lucrative, are a riskier option. It requires much more experience and market knowledge and the means to renovate and cover costs while the property is vacant.
2. Study the current market
Don’t even consider investing in real estate without doing proper research on the housing market. Market trends are key factors in determining whether or not your investment will be a good one and how quickly you will profit.
The real estate industry is based on supply and demand cycles affected by economic trends. The best way to get an overview of the market is to study past data as well as current trends. It’s a good idea to talk to an experienced real estate broker, who can provide you with the best information about the market and give you valuable advice about how things are going.
3. Learn about REITs
Real estate investment trusts (REITs) are a relatively safe way to invest in real estate. If you’re not sure you want to commit to something, REITs can be a good option for a more conservative or risk-averse investor.
REITs are essentially companies that own or finance income-producing real estate. They offer an investment opportunity, similar to a mutual fund, that allows you to invest in real estate assets without having to purchase a rental property or manage it. These properties generate rental income and appreciation, and REITs then return 90% of that income to shareholders in the form of dividends.
Because investing in REITs is much less expensive than a down payment and mortgage, it’s a better option if you want to invest in real estate but have less savings or disposable income.
4. Don’t go it alone
Investing in real estate can be daunting, especially for first-time investors. It is best to surround yourself with professionals who know what they are doing. You should seek advice from experienced investors who can guide you in the right direction. When it comes to market research, it is good to have a real estate broker that you can rely on.
You should also have people you can turn to for different needs you may have along the way. Depending on the investment strategy you choose, you may need a property manager, a real estate attorney, a real estate broker, a building inspector, a general contractor, a plumber or an electrician. These are just a few examples, there are others but you get the idea.
Establish the right relationships with the right people to be successful in your real estate investment venture.
