Investing your money into real estate is always a good idea.
Disclaimer: The views expressed in this article belong to an independent guest author and not Leaderonomics, its directors, affiliates, or employees. This is not financial or investment advice. Please do your own research and evaluate your risk appetite before investing.
When you are looking into investment options, there are many choices. You can invest in stocks, exchange-traded funds, mutual funds, bonds, and real estate. All these are great investment opportunities and it is up to you to make your choice. However, if you have set your heart on investing in real estate, there are a few things to know before you start.
Owning real estate is a great investment strategy that can be lucrative and satisfying. Unlike other mentioned investment opportunities, real estate owners can easily use leverage to invest in a property by paying a portion of the total cost upfront and then paying off the balance over time. So, if you want to get started, here are a few things that might help you make a good decision.
(1) Rental Properties
Owning several rental properties can be a great way to stay lucrative and enjoy owning properties. This is a great opportunity for people that love DIY renovations and that have the patience to manage tenants. Also, this strategy does require a huge capital in order for you to be able to finance upfront maintenance and renovation costs before anyone moves in. If you are not sure about this method, take a look at the pros and cons.
Maximises capital through leverage
Tax deductible associated expenses
Managing tenants can be tedious and tiring
Potential damages on the property from tenants
Reduced income from vacancies
(2) Flipping Houses
House flipping is for people who have a lot of experience in real estate valuation, renovation, and marketing. This investment strategy also requires capital and great skills for overseeing and doing repairs as needed. Also, there are a lot of aspects to flipping houses and a lot of renovation work. Depending on the state of the house, you might have to repaint, refurbish, put in new floors, check installations, provide insulation, and so on. However, a lot of these projects can help you increase the value of a home in moments. For example, if you consult with experts such as insulation4less, for example, and add insulation that suits the house, you can increase its value due to energy efficiency. For roofing-related repairs and upgrades, partnering with experienced roofing experts can ensure the property's safety and add to its overall appeal.
Also, you should be sure you are able to swiftly unload the property. If you cannot, you might be in trouble because flippers don’t typically keep enough uncommitted cash on hand. So, you might want to team up with someone and make the investments wisely. Another option is to buy a reasonably priced property and renovate it to add value, while also considering the importance of protecting your investment with builders risk insurance to mitigate potential construction-related risks and losses.
Ties up capital for a shorter period of time
Can offer quick returns
You need deeper market knowledge
Hot markets could cool down unexpectedly
REIG stands for Real Estate Investment Group and this investment is perfect for people who want to own a rental real estate. If you invest in REIGs, you would have to have a capital cushion and access to financing. You can look at REIGs as small mutual funds that invest in rentals. Typically, in these groups, a company builds or buys a set of condos or apartment blocks. Then they allow investors to purchase them through that company and join the group.
A standard REIG lease is in the investor’s name, and then all the units pool a portion of the rent to guard against vacancies. You will then receive some income even if the unit is empty.
More hands-off than owning rentals
Risks of vacancy
Fees similar to those in mutual funds
Susceptible to unscrupulous managers
REITs stands for real estate investment trusts and this option is best for people who want portfolio exposure to the real estate market. To create a REIT, a corporation should use investors’ money to buy and operate income properties. Then, REITs are sold and bought on major exchanges just like stocks.
The corporate must pay out 90% of its taxable profits - dividends - to maintain the status of its REIT. This way, REITs avoid paying corporate income tax where a regular company would be taxed on its profits. Also, REITs operate just like regular dividend stocks. They are solid investments for stock market investors who want regular income. Also, REITs afford investors an entrance to nonresidential investments including office buildings and malls. REITs are highly liquid and you won’t need a real estate agent to cash out your investment.
They are essentially dividend-paying stocks
Core holdings are usually long-term, cash-producing leases
There is no leverage associated with traditional rental real estate
Investing your money into real estate is always a good idea. No matter if you want to live in that house, flip it and sell it or simply rent it, it’s a good idea to put your money into real estate. However, before you invest, you should research all these options and see what best suits your needs and situation.
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