So you’ve made the decision to invest in real estate, but now what? If you’re reading this, then you’re probably wondering how to get started and which investment strategies will help your portfolio grow.
In this article, we’ll discuss 8 effective real estate investment strategies that any beginner can easily use to get started in the world of real estate investing!
Know What You Want Before Investing
Before you buy, you have to have a general idea of what you want. Many people enter into real estate investments without a plan and quickly find themselves in over their heads, financially speaking.
As with any investment, it’s important that you know where your money is going and what it will be used for—and stick to those parameters.
For example, if you’re purchasing property solely as an investment but don’t plan on living there yourself (unless someone in your family needs it or would like to use it), you should look at short-term rentals—such as Airbnb options—and invest accordingly.
If you want both long-term rental income and appreciation of your property, think about adding value with a renovation project before putting it up for rent.
Do you know how much you can afford?
Before you even start looking for properties, it’s important to figure out how much money you can put toward a property and how much debt you can afford. Even if you don’t plan on financing your purchase, try thinking about what kind of mortgage payment or rent could be reasonably possible.
As long as you know how much is too much for your budget, everything else will fall into place. And never forget: A deal doesn’t have to make sense financially; it just has to be a deal.
There are a lot of things that go into making a sound investment—location, timing, and fundamentals (like cap rates) all matter—but they shouldn’t limit your choices.
Ask yourself, are there better alternatives?
One of our favorite sayings here at Wealthfront is, Asking whether there are better alternatives than your investments is a sign of intelligence. Not asking, that’s what gets you into trouble. One of our favorite sayings here at Wealthfront is, Asking whether there are better alternatives than your investments is a sign of intelligence. Not asking, that’s what gets you into trouble.
In other words, asking yourself if there are better alternatives for investing your money can be good for your portfolio. If you feel like investors in general are too bullish on tech stocks or banks or real estate consultancy like First Elite—or whatever asset class you think has grown expensive—you may want to look for less crowded alternatives.
Is it too good to be true?
It seems like every day, some new investment opportunity is hitting your inbox or popping up on your Facebook feed. The promise of low risk and high returns draws you in to take a closer look—but be careful! Many new investments are far too good to be true and can come with huge risks. While it’s okay to be skeptical of an email you get from a friend or link from social media, doing your homework before investing any money is incredibly important. If something sounds too good to be true, then it probably is.
Look for long-term investments
One great way to invest in real estate is to find a long-term investment (one that takes several years). But that might not be feasible for everyone—depending on your income and financial situation, you may not have enough saved up yet. If that’s true for you, look for other options that will give you more immediate returns: Focus on investing in multi-family homes rather than single-family ones. Multi-family homes can often be rented out at much higher rates than houses or condos; thus, a small down payment can mean a large potential profit within a short amount of time. Rather than buying properties as investments, consider purchasing them as places to live and then renting them out.
Consider All Options
Just because you can take out a second mortgage on your house doesn’t mean you should. When considering a real estate investment strategy, make sure that it meets your financial goals and comes with reasonable risks. If it sounds too good to be true, there’s probably a reason for that.
A real estate investment strategy may include buying, renting, flipping or even developing property; getting advice from a professional who understands those options is crucial. For example, if you want to develop property yourself in an area where land is cheap but labor costs are high, then you’ll need access to loans or resources (like paid laborers) that will help offset those expenses.
Use the Rule of 72
Using the Rule of 72 is a great way to see how long it will take for your investment to double, and it’s simple. To use the Rule of 72, you simply divide the number 72 by the annual rate of return on your investment.
For example, if you’re investing in something that gets an 8% annual return, then dividing 72 by 8 will tell you that it’ll take 9 years before your money doubles using that strategy. Essentially, the Rule of 72 gives you a quick estimate of how long it’ll take for your money to double through various investments.
This can be particularly helpful when trying to decide between multiple investments offering different returns; just figure out which one will get you where you want faster (the higher number) and put your money there.
Check Out Tax Benefits
One of many reasons that real estate investment is attractive is its potential for tax benefits. But you can’t always count on them, and when it comes time to sell your property, you’ll need to assess whether or not they have been effective.
Of course, if you’re planning on holding onto your investment for several years or more, then it likely won’t be an issue. That said, you should still know what tax benefits may come into play and,
be able to work with a tax professional who can help you make decisions about how best to structure your acquisition strategy.
And subsequent sale. After all, real estate taxes are sometimes so complicated that even professionals may not fully understand how they work in practice.
The Pros and Cons of Flipping Properties
Flipping homes can be an excellent way to make money, but it isn’t always the right choice for everyone. When you decide to flip houses, you’re entering into an area of real estate investing that can be very rewarding and lucrative or which can cost you everything if you don’t know what you’re doing.
To learn more about the pros and cons of flipping houses so that you can determine whether or not it would be a good fit for your own business and financial goals, keep reading this article to discover all of the most important information about flipping houses for profit.
Advantages of Flipping
What are some of benefits of flipping? You might not think so if you don’t know anything about it, but it is a fantastic way to make money. Many people who have never flipped before have made millions of dollars in a very short amount of time with no prior knowledge or experience.
This is one reason why people love flipping homes. However, there are many reasons why most people don’t like flipping properties as well. Flipping doesn’t come without its set of disadvantages as well.
You will want to become familiar with all aspects in order to make a sound decision on whether or not you want to pursue such an endeavor. If you choose to be successful at real estate flipping, here are some of your advantages
Disadvantages of Flipping
Flipping isn’t as straightforward as it looks, nor is it a magical way to make a lot of money fast. Just like most other things in life, flipping comes with both advantages and disadvantages.
Before you leap into real estate investing, it’s important to understand what flipping properties is all about so you can know how to proceed safely. The advantages are: Less restrictive than development loans.
If your plans for a property include demolishing existing structures or buildings for new ones, you may find it difficult to get a traditional mortgage loan from a bank or another financial institution.
Tips to Flip Successfully
There are a few tips to remember when you’re flipping homes:
1. It’s important to know your budget before you start looking at homes;
2. Do your research on current market value, property taxes, school districts, and possible neighborhood challenges.
3. Search for unappealing properties that can be brought up to code quickly with relatively little money or time;
4. Make sure you have a solid team around you – from home inspectors to contractors – who will bring their A-game;
5. The most important tip is to work with real estate professionals who know how to flip successfully (and get top dollar in return). These professionals will help guide your through every step so that your house sells fast—and for top dollar!
Build a Team
Most business owners will tell you that a team is a major reason for their success. The reason is simple: people are better at working together than individuals are at doing things by themselves.
Having a support system means less stress, more fun, and faster progress. Don’t be afraid to hire additional staff for particularly busy times; it’s worth paying others to help if it frees up your time to focus on big-picture issues or tasks you enjoy more than just getting out work orders every day. With a strong team in place, there’s no telling how far you can go!
Look at Fixer-Uppers
Fixer-uppers are real estate projects where you’ll spend time and money restoring a home to its original state. While fixer-upper properties don’t always turn out as well as you hope, they’re often easy to come by.
If your budget is large enough, try looking at newly built homes with great bones that could just use some modernizing. This can be an affordable way to make a big impact quickly while saving on renovation costs.
Know Your Market
With real estate, you have to know your market inside and out. For example, you should be aware that people in Florida can afford higher prices than those in Alabama. The demand for homes is also different in each location.
For example, Miami might not be a good location for flipping houses if there’s not a lot of pent-up demand because of residents who lost their homes during hurricanes or foreclosure.
On top of that, how much inventory there is for sale will make a big difference on whether it’s best to flip or buy an existing property in order to save time—if there are few properties on sale, then it may take longer to find one worth buying than waiting to find something you can flip right away.
Look For Help Online
When you’re first starting out, it can be very helpful to look online for a mentor or another real estate pro who can help you get up to speed. Real estate communities like BiggerPockets are great places to find experienced investors willing to offer advice.
And social media is full of forums where people discuss buying/selling strategies. Joining in conversations with more experienced investors will expose you to best practices, ideas, and considerations that might not occur to someone just learning how real estate investing works.
Spend some time online absorbing what others have learned—it’ll be time well spent when your dream flips end up in profit!