Preparing for the future requires finding the best methods for saving and investing money. Without proper and safe investing, preparing for future plans and retirement can be impossible. For many people, this investing takes the form of purchasing stocks or other financial portfolios that depend on the success of one or many businesses. In today’s world, the volatility of the economy and the stock market have made it difficult for many people to trust these types of investments.
Although many people are still wary of the housing market, it has become apparently clear that this type of investment is often the most stable. Even with dips in the housing market, eventually, property values go up. More often than not, property values will increase over time. This makes real estate investment a great option for many to secure their futures. However, many people do not know the first thing about investing in real estate. Fortunately, there are a variety of methods available to provide a great start for any beginner or even a novice. There are even options available for a beginner to get into the real estate business with a small amount of capital to start.
Determining Your Finances
Before jumping into the real estate industry, the first thing anyone needs to do is to determine how much money they are able to invest. This requires a hard look at personal income, savings, and even credit worthiness. The best and safest option for investing in real estate is to be able to do so with only your personal savings. If your savings are large enough, the purchase and costs associated with whatever type of real estate investing can be done without utilizing anything other than the savings account. However, many people do not have that much in their savings account for every type of real estate investing.
A mortgage or other type of loan can be an option for purchasing property to begin the investment. This makes it important for those choosing this route to really examine their personal finances. There is no point getting a mortgage or other type of loan if you cannot afford the payments on the loan. Working directly with a bank or financial adviser can be beneficial in helping to determine the best amounts for your personal situation, but these add additional costs to the investment. Fortunately, many banks and financial institutions offer mortgage and loan calculators. This allows you to determine the amount of loan you need and how much the payments will be. Once an affordable amount is determined, the next step is determining the amount of time you must put into this investment.
Determining Your Time
This step is crucial in determining the type of real estate investing you want to delve into. Some types of real estate investments require a lot of time and effort on your part to ensure a good return. There are other types that take very little effort on your part. There are also a variety of in between options that may take little or a lot of time depending on the particular situation. For example, investing in an REIT takes very little effort or time from the investor to achieve a return. Purchasing a home to flip, however, takes a lot of time and effort fixing up the house and making repairs to make it ready for resale. An in between option is purchasing rental properties. Becoming a landlord can be a pretty easy process or be very time-consuming, it depends greatly on the property and the types of tenants.
For younger individuals who have yet to start a family, diving into property flipping may be an option. However, for those working one or more jobs, maintaining a family with young children, and managing other familiar obligations, REIT may be the better option. It is also important for individuals planning on investing in property to really consider all the obligations each type of property ownership requires. Even if you have the time to put in the effort, you may not want to work that hard on a property. The opposite may also be true. Even though you have very little time to put into a property, you may not want to be a hands-off investor. However, being realistic in this type of decision can help ensure a successful investment opportunity.
Low Cost, Low Effort
For those with even a little capital and not much time to put into an investment, a Real Estate Investment Trust or REIT may be the best option. REITs are similar to mutual funds. A person buys shares like stocks of an REIT. The REIT owns or finance real estate properties. These are usually commercial properties, such as office spaces, retail properties, apartment buildings, or hotels. When investing in an REIT, you do not actually own the physical property, you own a share in the company. Many of these shares can be bought and sold on the stock exchange.
REITs are great for a beginner or novice investor. Most REITs have a very low starting investment between $500 and $2500. This makes it easier for many people to use only their savings to start their portfolio. REIT shares also offer high dividends. This can provide you with a regular income or the dividends can be used to purchase more shares. This can help produce a very lucrative retirement portfolio. In addition, since you do not actually own the property, you do not have to take care of the property. The company that you invest in provides all the care and upkeep for the property, you just reap in the profits from your investment. This allows you to focus on other aspects of your life without the headaches of dealing with property repairs and upkeep.
High Cost, High Effort
One option that does require a higher investment and a lot of effort to make a success is a house flip. This is when a person purchases a home, fixes any problems or provides cosmetic improvements, and then sells the home for a higher amount. This requires money or a loan for the purchase of the house and money to make the repairs or improvements to the house. Depending on the home and how much you are willing to do yourself, this can get quite expensive. If home values are good in the area, it can provide a large return.
This type of investing opportunity takes a lot of research and educating yourself on the area you are planning to purchase a home. It is important that you not just look at the home values in the area, but the actual sale amounts for similar homes in that area. It is also important that you are sure of your finances and set a very strict budget for the house you wish to purchase. Many people have gotten in over their head by purchasing houses outside of their affordability. It is also important that you are patient. The housing market can be fickle. It can sometimes take a while for a house to sell. You should be prepared for this potential issue.
Tips for Choosing to House Flip
If you have a lot of time to wait on your return, it may be a good idea to investigate areas that have dropping house values or other temporary issues. Often, you will find people willing to sell their house for a very small, cash amount. Unfortunately, many of these homes have serious problems. Foundation repairs, electrical, and plumbing problems can be very costly to fix. However, if you are experienced in some of these types of issues, you may be able to fix these houses yourself or at little cost. This can be a great way to make a very large profit in a little time. For example, if you bought someone’s house for $10,000 and were able to fix it for about $10,000, your investment would only be $20,000. If you can sell that home for $40,000, then, you made $20,000 in profit off the flip.
There are also options for higher investments in the house flip market. Those with higher capital to start out may be able to find a property of higher value with little or no serious problems. Often, these homes were owned by elderly people and are quite outdated. Investors make aggressive cash home offers allow room for any improvements, as well as increased profit margins. This allows the investor to update the home and provide cosmetic fixes to bring up the value. This can often garner a much higher return. The best tips for beginners getting into the house flip option is to always do your homework on the area and stay within your budget. This can help ensure a profitable return.
The In Between Option
Purchasing a rental property is an opportunity that can provide continuous income for those who choose this option. This option does require purchasing actual property and requires some time commitment in the process. However, there are various types and options available that can appeal to a beginner or a novice. There is a lot to consider when planning to become a landlord. There will be tenants to deal with and middle of the night emergency repairs that must be attended to.
For anyone who has rented a place to live, you can get an idea of what a landlord must deal with throughout the month. It is important to really consider these difficulties and challenges before choosing this option. Fortunately, there are options available that can assist with those who do not like the idea of being a landlord but want to own property with residual income.
Being a Landlord
When you purchase a property to be rented out, the property must be in good and safe working order. It must also offer all the features required by the local municipality, such as smoke or carbon dioxide detectors. It would be your responsibility to seek out tenants and perform any background checks on those potential tenants. You are responsible for collecting rent and providing repairs to the property so that the tenant has a safe and comfortable living space.
As a landlord, you may also have to deal with problems at the property. This can include emergency damages, such as a water pipe break. You may also need to take legal actions against tenants that do not pay their rent. However, this option has the potential to provide a continuous return for as long as you own the property. This could easily provide a solid income to help supplement your retirement.
Many beginners can find out if being a landlord is something they could handle by renting out a room in their home for a few nights. Companies, such as Airbnb, offer an online platform that allow short-term renting of a room or home. Posting an extra room or even a home for a few nights can provide a beginner with a small insight to what being a landlord could be like. It is important to realize that becoming a landlord does not end after a few days. It can last for years or as long as you want to be a landlord.
If the few nights a stranger rented your room really bothered you, or it was just a whole lot more than you think you could handle, then maybe being a landlord is not your cup of tea. However, you do not have to completely give up on this real estate option. There are companies that can assist with this problem and help you manage one or even several rental properties.
There are property management companies that can provide all the services of a landlord while still allow you, the property owner, to collect a regular income. This allows a person to purchase a single-family property or even a multi-family unit to provide rental options for the community. The property management company can provide some or all the services usually provided by the landlord for a fee. This allows you to determine how much you are willing to put into running your properties.
Some property management companies provide everything to ensure the property is rented and maintained. They will place the advertisements for the rental and perform the background checks of all potential tenants. These property management companies will also provide all maintenance and repairs for the property. These companies even offer services to evict tenants and pursue any past due rent payments. This can take out all the frustrating parts of a being a landlord. There are even property management companies that offer properties for sale.
These tips on real estate investing can be a great resource in helping you decide the best options for you and your situation. Each comes with risks and complications that must be considered before choosing the specific option. However, they all come with dependable returns and income that can be very beneficial in securing your financial future.
For more information on real estate investing, visit New Leaf Properties. We are experts in locating the best real estate deals for your budget.