You must have the finances
Your financial house needs to be in order. Have emergency funds available, no consumer debt and your retirement savings automated on a monthly debit order.
Real estate is an expensive investment, so you need to have cash on hand for a down payment, or simply buy the property outright and have reserve funds available for when something needs fixing. These funds should be entirely separate from your everyday emergency fund.
Invest into a real estate investment trust
If you want to wade into real estate, investing in a real estate investment trust (REIT) will provide you with exposure to the market without the time and cost commitment of buying your own property. Equity REITs, the most common type of REIT, allow investors to pool their money to fund the purchase, development, and management of real estate properties. A REIT focuses on a specific type of real estate, such as apartment complexes, hospitals, hotels, or malls. Ninety percent of annual earnings, usually in the form of rental income, are returned to the investors as dividends.
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If you want to keep your investment liquid, stick to publicly traded REITs.
If you’re willing to part ways with your money for the potential to earn greater returns, consider investing in the private real estate market who will help you invest in real estate projects without you having to actually manage them.
Investors can choose a portfolio to invest in based on their goals, either supplemental income, balanced investing, or long-term growth, and earn dividends quarterly.
Know your local housing market
If you do plan on buying your own investment property, start by getting to know the local market in your own neighborhood. Talk to real estate agents and locals. Find out who lives in the area, who is moving to the area, and why. Analyze price history.
Do your research.
Build a local team
Successful real estate investing is as much about what you know as who you know. If you really want to get into real estate investing, you need to focus on building relationships with people because that’s what real estate is, it’s a relationship-based business. Build a team of real estate agents, contractors, attorneys, and accountants who can all help your business run smoothly.
Keep it simple
A simple strategy can go a long way in real estate investing. If your goal is to generate passive income, don’t be fooled into believing you need to go big to make it happen. It’s best to start small and keep your expenses low. The game of rental properties is eventually getting yourself free and clear of debt, so that you have a very low-risk, high-income investment that allows you to go and do whatever else you’re going to do with your life.
Buy a single-family home and rent it out
Buying a single-family home and renting it out will only generate income if overhead costs are low. If your tenant’s rental payment doesn’t cover your mortgage, insurance, taxes, and maintenance, you’re losing money.
Ideally, your monthly mortgage payment will be relatively fixed, while rent prices rise, increasing the amount of money you pocket over time.
This is where you buy a small building with a few units and with a mortgage, live in one of the units and rent out the other units. This will cut down your own living expenses and should generate enough income to cover your mortgage payment, taxes, and insurance every month. Put any leftover money into savings, to be used to take care of maintenance costs and bank roll your next investment.
Buy a multifamily building, rent out the units, and then later turn the units into apartments and sell them off individually. The idea is to buy the building for a little bit of a discount, and then eventually sell for top dollar. You have cash flow in the short-term, appreciation in the long-term for building wealth over 15 or 20 years, and then ways to force appreciation if you need to get out. Make affordable but thoughtful upgrades to the property to unlock value before you sell, such as fresh paint, new countertops, and refacing cabinets.
Buy a fixer upper and flip it
A fixer upper remains one of the most time-consuming and costly ways to invest in real estate, but it also has the potential to produce the biggest gains.
Buying a home, renovating it, and reselling it can be a hot or miss effort. You should always be prepared for unexpected problems, budget increases, time-inducing mistakes, a longer renovation timeline, and issues selling on the market.
It’s especially important to build a team of experts you can trust and make sure you have the cash reserves to troubleshoot.