A Beginner's Guide to Real Estate Investing
Why invest in real estate? Tax breaks, passive income, and generation wealth - to name a few. But there’s several ways to invest in real estate, and all those options come with different risks. So whether you’re eying land or considering becoming a landlord, here’s a beginner’s guide to investing in real estate.
Why invest in real estate?
Stocks, bonds, securities - there’s plenty of vehicles for investment, so why choose real estate? Real estate is considered its own asset class and should be at least a part of a well-diversified portfolio. Real estate provides lower volatility than high-risk investments such as stocks and equities. It also typically yields a higher return than other forms of investment.
What are some types of real estate investments?
Real estate investments can be, for example, residential property (short or long-term rentals), commercial properties, or flipping homes. Your choice depends on your unique situation, how much money you have to invest, your income needs, and how “hands-on” you’d like to be. Also, how much time do you have? There’s a saying: Don’t wait to buy real estate. Buy real estate and wait.
If you invest in commercial real estate, you rent the property to businesses and collect monthly rent. It’s common in commercial real estate to put more of the responsibility of upkeep on the tenant than in residential real estate.
Residential real estate investing requires a little more work but can also be very lucrative. Residential properties provide a couple more options, such as living on the property and renting out a portion of the home, or you can rent it out entirely. If you are planning on moving from your home, it may make more sense to keep it as a rental instead of selling it.
House flipping can be a quick way to turn a profit, but it comes with risks. When you flip a house, you essentially purchase a “rehab property” for a low price, fix it up, and sell it at a profit. It’s a tricky balance between location, price, necessary repairs, and potential resale value. Also, having an excellent team to ensure a quick turnaround is critical.
What are the risks involved in real estate investing?
While there are several pros to real estate investing, there are also risks. If you purchase a residential property, you become a landlord and are responsible to your tenants. Becoming a landlord means paying property taxes and insurance, maintaining the property, finding tenants, and dealing with any problems. You need to consider if you’re comfortable in that role.
The risks of investing in commercial property align with that of residential properties. Finding tenants to fill your property can take time and effort, and you need the tenant’s business to do well to collect monthly rent.
Thinking of house flipping? There’s plenty of risks involved. When flipping a property, it’s imperative that you hold it for a short time and then sell it. But problems with renovations can lead to unexpected expenses, killing your profit.
Here’s the bottom line.
The bottom line is that, like any investment, real estate comes with its risks. It’s essential that you choose the suitable investment for your needs and weigh how it fits into your investment portfolio. It’s also crucial to work with an agent who knows the market because - location, location, location! A REALTOR® can provide insight into the current market volatility, historic appreciation numbers, and more. Have questions about investing in real estate? Send me an email at guro.midtsund@exprealty.com!
