Triston Martin
Oct 13, 2022
On hearing the term real estate, the most probably thought that comes to your head is your house. Real estate investing goes beyond just rental assets.
For over a half-decade, the popularity of real estate has increased rapidly. We are here to give you some tips on how to start investing in real estate. We understand real estate investing for beginners can be quite confusing, but we are here for your rescue.
Below are a few assets you can consider investing in:
Investing in lease properties will make you a landlady/landlord—so you would have to contemplate if you are okay with this role. Being in this role, your responsibilities would be to pay taxes, insurance, property debts, search for lessees, asset maintenance, find tenants, and deal with other related issues.
Managing real estate without a property manager can be an on-the-job task. However, cautiously choosing your properties and tenants can reduce the chances of any major issues
Generally, landlords make money through:
Rent: The rental amount varies from location to location. Yet, determining rent can be quite challenging. If it is too high, it might be difficult to find tenants, and if it’s too low, you might face a loss. The key to this is to keep the rent such that it covers the expenses till the rent is paid.
Appreciation: If your asset escalates in value, you can make profitable sales of it( at an appropriate time) or lease against the valuation for making your next investment.
Flipping property: Flippers purchase properties with the intent to hold them for a short period—generally 3-4 months—and promptly sell them at a profit.
A real estate investment trust (REIT) is a trust or corporation that uses the investors’ money to purchase, operate, and sell income-generating assets. To get qualified as a REIT, the entity must pay 90% of its taxable profits as dividends to stakeholders. This spares the REITs from the corporate income tax.
REITs are the best option for those who want regular income, while they even have the chance of appreciation also. Liquidity is another property that makes REITs a better option as compared to other real estates.
Real estate investment groups (REIGs) are small mutual funds for rental properties. If you wish to possess an on-lease asset but do not want the nuisance faced by a landlord, a real estate investment group can be a preferable choice for you.
Theoretically, this is a safe method for investing in real estate, but groups might sometimes charge skyrocketing fees that might be like a nightmare in the mutual fund industry.
A real estate limited partnership (RELP) is quite like an REIG. It is an organization that intends to buy and hold a portfolio of property(s). Although RELPs operate for a limited period.
Real estate mutual funds are primary investors in REITs and real estate managing companies. Based on their tactics and diverseness, they allocate investors a wide estate selection that can be obtained by purchasing solitary REITs. Similar to REITs, Real estate mutual funds offer liquidity.
Before searching for how to start investing in real estate, a question might have popped up in your head: Why must I invest in real estate?
Real estate investing has many pros, a few of which are mentioned below:
Real estate has a very less, or sometimes negative correlation with other leading asset groups—In simple terms, when stocks are down, real estate is generally up.
The inflation-shielding property of the real estate is due to the positive correlation between GDP rise and the requirement for real estate. As economies grow, the demand for real estate results in higher capital values.
One of the significant benefits of real estate is leverage. Leverage refers to using debt for financing a bigger Investment than the amount available to you. This real estate allows the investors to control their properties- it is up to them whether they rent the assets or make sales when there’s a profit.
If you are looking into investment options, real estate can prove to be a prospective asset, having the potential to yield a stable income and boost assets. Yet, the difficulty with real estate investments is their illiquid (difficulty in the conversion of an asset to cash and vice versa) nature.
In contrast with stock or bond settlement that can be done in seconds, real estate proceedings may take months to conclude. Certainly, REITs and real estate mutual funds are liquid assets and provide market value. But they have other drawbacks, like they are highly volatile and have low diversity benefits, as they have a very high correlation to the stock market as compared to direct real estate investments. While engaging in any investment, be realistic about your expectations, and don’t forget to do detailed research before making any decisions.
Apart from purchasing properties directly, accustomed stakeholders can buy REITs or fund investing in REITs.
As inflation rises, residential prices often seem to increase in parallel. The main reason behind this is the rise in the prices of homebuilders with the rising inflation. While the cost of pre-built houses also increases due to inflation. If you bear a fixed-rate contract, your predetermined monthly remittance gets more affordable as inflation increases. Besides, if you are a landlord, you can raise the rent to keep up with inflation.
Real estate investments require loans for financing as a huge and expensive asset. Due to this reason, inflated interest rates result in costlier asset investments and are more expensive for new loaner variable-rate loans such as ARMs). This can dismay the people who buy these properties due to their high monthly costs.
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