In the current beleaguered economy, a large and ever-increasing number of people have an investment portfolio. Whether it is bonds, gold, government schemes, or stocks, a smart and well-informed investment can potentially turn one’s life around, or at the very least, be a sterling source of additional income. Real estate is one such mode of investment that holds immense promise and has significantly risen in popularity over the last decade.
If you are an aspiring investor, you may be a little hesitant to go the real estate route. There is certainly some stigma surrounding real estate investing primarily because it is a very maintenance-intensive process. With that said, real estate investing can, in reality, be pretty flexible. Depending on the kind of real estate assets you choose to invest in and the investment strategies you employ, you may not even have to tend to your properties as much.
Here is everything you need to know about real estate investing including 3 simple ways to invest in real estate if you are a beginner.
Top 3 Ways to Invest in Real Estate for Beginners
Real Estate Investment Groups (REIGs)
Directly investing in real estate requires investors to be extremely hands-on and involved. The administration and maintenance responsibilities fall entirely on the investor and call for undivided attention. This is often not feasible or practical for budding investors. As a new investor, giving your undivided attention to a single asset would be restrictive and prevent you from branching out and having a diverse investment portfolio.
Investing through a real estate investment group (REIG) can be an excellent alternative to direct real estate investments. A REIG is a group of private investors that pools capital and other resources among its members and invests the pooled funds, or the majority of it, into real estate. The greatest advantage of investing through a real estate investment group is that the ongoing administration and maintenance of properties are taken care of collectively by the group. The pooled funds also enable new investors to invest in larger projects and a number of different property types for maximum return potential.
Investing in rental properties is a more hands-on approach to real estate investing. This could be a stellar fit for prospective investors who can spare a significant amount of capital upfront and are comfortable with the responsibilities that come with being a landlord. Rental properties have the potential to be highly lucrative and profitable with the two main sources of income for landlords being rent and appreciation.
With rental properties, charging too much or too little rent can both be damaging for your returns in the long term. A sound strategy is to charge a rent that would cover expenses up to the point that the mortgage is completely paid off. From that point forward, most of the rent would be a profit. Rental property investments can yield steady profits with the exception of reduced income due to vacancies.
Flipping real estate entails purchasing a property, holding it for a certain period of time, and then selling it for a marked-up price. There are two main ways in which houses are flipped. An investor may buy an undervalued property, repair, and upgrade it within a short period of time, and then sell it for a price that covers and exceeds the entirety of the investment and renovation costs. Based on this, you can also purchase a property in a market that is on a steady upward hike, hold on to it for a short period, and sell it for a profit.
Why You Should Invest in Real Estate
One unique advantage that direct real estate investments have and that other forms of investments lack is leverage. Leverage essentially means the ability to use debts to accomplish bigger investments than your currently available cash will allow for. With real estate investments, it’s relatively easy to finance large parts of new investments by leveraging the power of financing existing real estate holdings through mortgages.
For example, you can easily take out a mortgage on a property you already own and use that resource to finish down payments on one or more new properties. This way, you can get control over these properties and can use that control in creative ways to get returns from your investments. You can easily rent out the new properties and let the rent payments go towards your mortgage, or wait for market values to increase before selling for a profit.
Investment portfolio diversification
There is always an element of risk associated with the process of investments. One of the best ways to keep that risk in check and ensure minimum impact of adverse market conditions is keeping your investment portfolio diversified by breaking up your investments into many distinct areas.
Real estate values usually have a very low correlation with the valuation of other market assets. In fact, when the value of stocks and bonds falls, real estate prices might actually increase. Therefore, investing in real estate is a great way to diversify your investment portfolio and significantly lower the risk potential.
For this reason, real estate investments are often seen as a hedge against market volatility and risk by expert investors. Since real estate investments are backed by brick-and-mortar structures and their value, there is also much less chance of conflicts arising due to a lack of competence of agents.
Just like real estate investments can be a hedge against overall risk in your portfolio, they can also be an effective hedge against inflation. The demand for real estate increases along with a growth in the GDP, indicating an elevated demand and higher capital values in expanding and evolving economies.
In scenarios where other types of investments can be negatively influenced by inflationary pressures, the inherent capital appreciation of real estate holdings helps dissipate that pressure considerably. This means that your capital in real estate holdings can maintain or improve its purchasing power even during times of inflation.
Real Estate Investment: Tips to Get You Started
Networking is key
To understand the investment potential of a particular property, you need to evaluate not just the property itself, but also the locality in general. You can really have a handle on this aspect of potential real estate investments through effective networking.
For example, networking with other people living in the area where you are considering investing in a property can give you a concrete feel about the development and potential for development the locality has in the long term. This can also help you detect potential problem areas.
Know the ins and outs of the market
Maintaining expert knowledge of the market, market rates, and market trends is vital to success in real estate investing. Spend time researching specific property types, market rates across different locations, and other determining factors to make decisions with the proper insight.
Recognize the potential of emerging neighborhoods
Being able to spot the investment potential of emerging neighborhoods early and capitalizing quickly can prove decisive for your real estate investments which can be critical when gas prices are high and inflation is out of control as they are now. Emerging neighborhoods often turn out to be the most productive in terms of rich returns on investment.
With these tips, it is possible even for beginner investors to start investing in real estate with a degree of clarity and confidence, and to enjoy the solid returns that are often typical of this market.