As you probably know, adding real estate investment to your portfolio is one of the best decisions you can make if you want to add some income to your wallet. However, don’t think you can just buy and stand aside as the money flows into your pockets! In order to earn well on real estate, you need to know a few tips and tricks that will get you started.
6 Ways to Start a Real Estate Investment
Become a Landlord
This is probably the most popular way people invest in real estate. What this involves is buying a property, renting it out and collecting money from tenants every month providing you and your family with constant cash flow. Why is this such a good way to invest? Well, your property will basically pay for itself as you get money at the end of every month, plus, in time, your property might increase in value so you can sell it for profit. However, being a landlord isn’t all that nice: you need to handle repairs, updates and neighbor issues, but if you’re too busy, you can hire a professional property manager to handle your responsibilities.
Pro tip: buying a rental property? Remember a “Percent Rule” before you sign anything. If you can’t get a certain percentage of the price you’re planning to pay by the end of every month, the property isn’t worth it. The percentage depends on your local market. In some real estate markets you might get a 1% per month return, in others , 1/2% might be more realistic.
Join the Airbnb crowd
If you like the idea of being a landlord, but are not ready for the real thing, try renting a part of your home using websites like Airbnb. This allows you to get pre-screened tenants, get guaranteed protection against damage (all provided by the website) and avoid long-term commitments of all sorts. And, if you got a spare room, you can rent it—it’s much more accessible than traditional real estate investing.
Try house flipping
According to TV, house flipping is super popular today and very easy. Basically, what you need to do is buy a house, renovate and resell for a profit—that’s it. However, in reality, things are a little more complicated. Money is usually good, but you need to be ready to spend time researching, have money to invest and have expertise when it comes to home improvement. But, there are always pros, so if you’re too busy, you can hire experts to tackle your renovation, just expect a reduction in your profit. (For some of these reasons, Bo Kauffmann of REMAX does not consider house flipping to be an investment strategy. It is transactional by nature, and considerably more risky than buy-and-hold.)
Build a good team
If you want to improve the success rates, you need to build a good team that will help you and allow you to profit. Real estate business involves a lot of networking—you need good relationships with people and plenty of experts on your side. First things first, find a good property consultancy firm that provides smart and innovative project management solutions. Professionals in this field will help with risk assessment, understand your needs and ensure you use your asset portfolio in the right way. Add contractors, real estate agents, attorneys, accountants and a great property manager to your team and your business will not only run smoothly but also grow quickly.
Invest in REITs
If you don’t want to have a lot of fuss and a huge team around you, you can try investing in REITs which are pretty similar to stocks. Real estate investment trusts or REITs allow you to earn a passive income and invest in lux properties without breaking the bank. But, make sure to always follow your investments and keep an eye on the stock market since REITs depend on it pretty closely.
Learn about taxes
Think about this scenario: our government needs private investors to provide housing for people, otherwise, it will be responsible for the housing market itself. For that reason, real estate investors can get pretty sweet tax benefits from the government, the most significant being the depreciation write-off. This allows you to write off the depreciation of the building you invested in and get a good tax deduction. Also, the IRS (or your country’s equivalent of it) sees your real estate investments as a business effort, so you can end up with “necessary and ordinary” deduction that might include mortgage interests, insurance and maintenance expenses. This is where your team might come in handy, especially if you have a tax advisor at hand.
When you know where to start, real estate can be a great way to invest your money and achieve great earnings. As long as you take it easy and surround yourself with the right people, you will love real estate and the profit it brings.