If you consider yourself an investor, a businessman/woman, or just a person who would like to increase their net worth through investing, then you should look into Real Estate as your next investment.
There are many different types of investments, like stocks, bonds, small startups, and the list goes on.
But the focus today is on Real Estate, and I’m going to convince you that Real Estate is for everybody, including you. Let me start with:
What Is Real Estate Investing?
Simply put, real Estate investing is purchasing physical properties (Mainly buildings or lands) to benefit from the cash flow and/or the future value it could bring you.
Generally, Real Estate investing could be divided into two types; Cashflow investments and appreciation investments.
What Is The Difference Between The Two? Which One Is Right For You?
Cashflow investing has to do with properties that may be purchased at market value. They provide good money inflow every month, especially in well established, popular areas. The focus here is on how much cash flow could the property generate.
Appreciation investing is buying properties that are either undervalued in price or are expected to significantly increase in value in the future. There are many factors affecting the value of a real estate property. We will be exploring them later on.
When deciding which of the two is best for you, think about what your goal is. If you plan for retirement and are thinking of an extra passive income source, then go ahead with the cash flow investments.
If you are in the phase of building wealth, you should be investing in appreciation properties, which could generate some cash flow if rented properly.
Wait for a Second, Why Real Estate as Opposed to Other Investment Opportunities We’ve Mentioned?
Good question. As I have mentioned above, there are many different investment opportunities, but Real Estate tops them all. Think of the following benefits you could get when investing in Real Estate:
- it provides the investor a source of passive income (if it was a good deal on the investor part)
- Simplicity – Scaling Real Estate business is not complicated at all. It is more of repeating what you have done over and over again (growing your Real Estate portfolio)
- It is a business that has the potential to offer financial freedom.
- The demand for Real Estate is increasing as the human population increases, the lands and buildings – not at the same rate.
If the reasons above aren’t enough to convince you, then here are some additional ones:
- Your Investments are tied to something physical.
- You can have tax breaks.
- You could use someone else’s money to kickstart your Real Estate business.
- Real Estate offers you portfolio diversification.
You can choose to have a look at this article from Investopedia that explains the Key benefits of Real Estate investing.
After setting your investment goals, you should choose a particular Real Estate type to invest in. Like in the stock market, you decide to focus on ETFs, Stocks, Bonds, or a combination of all.
Properties come in different forms and for different purposes too. Here are the five different types/categories of real estate properties:
- Commercial Real Estate
- Residential Real Estate
- Industrial properties
- Special Use properties
- Land properties
Each one of the five categories has its own advantages and disadvantages. My recommendation is to focus on the residential properties since it is a good starting point for most. Make sure to conduct your own research to figure out what is best for you.
Check out this article for more details and explanation regarding the different types of real Estate:
The Return on Real Estate Investment – MoneyWise
The return you could get on Real Estate is highly dependent on the deal itself. Things like: 1- Real Estate Type, 2- Location, 3-Timing, and market price trends are some of the factors that affect your ROI, be it a positive or negative effect.
Smart investors can choose the right property type in the right location and get in on the deal at the right time and use the market trend to their advantage.
In other words, the return on your real estate investment essentially depends on how good of an investor you are.
The Return on Real Estate Investment – Time Wise
Money should not be the only return asset you measure on your investments. Try looking at the time factor. How much time did you have to invest in order to get that return? Does it make sense for you?
Real Estate and property investments generally do well on-time return. All you need is to invest some time to figure out a good investment property, after which you could close the deal and rent it out.
You do not need to actively manage the property after this point.
If you’re still unsure about investing in real Estate or think it’s too difficult as it requires a massive capital budget, then thinks again. For most countries, you are only required to put down no more than 25% of the property price. The rest is loaned to you by the banks.
Now, banks will only loan you an amount that they trust you could repay them on time. Generally, banks look at:
- Your risk and credit score
- Monthly Income
- Repayment History
The interest rate you get is generally dependent on the above factors and the current trend in your economy.
Why Interest Rates Should Not Hold You Back from Investing
High-Interest rates on loans are being used as an excuse by many semi-interested people. Yes, it could be quite scary to take a loan and committing to repaying it on time. However, if you’re well prepared and go about it with a good plan, you’ll be more than fine.
Smart investors do not pay the mortgage loan on their investment property. What they do is simply rent the property and use the payments they receive to pay the mortgage. Yes, the tenant is the one who’s paying for your loan.
It is important to invest in the right property that could be rented out easily, with a cash flow sufficient to cover the monthly mortgage, do the math before buying the deal.
This was a short informational piece about Real Estate investing, hope you found it helpful.
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