Deciding to invest your money takes guts. It’s not for the faint-hearted. After all, the risks are real. If you put all of your eggs in one basket, and that basket collapses, your eggs will go kaput.
It pays to discern which basket is the safest and potentially profitable for your hard-earned savings. This is where real estate investing comes in. For novice investors, the real estate sector is probably the most enticing investment opportunity out there.
And that’s for understandable reasons. For one thing, if you invest in real estate, you’re putting your money into something tangible. Real estate is not like corporate stocks, for instance, where all you get is a piece of paper that proves your ownership of a company’s shares.
The real estate industry has a proven track record too. Majority of properties see value appreciation over time. It’s very seldom for real estate assets to depreciate unless something really disruptive happens, like the 2008 housing crisis where prices dropped by 15.9%, and foreclosures became widespread.
But past is past. Let’s zero in on the here and now. You have saved enough. You want to invest. If you’re seriously considering real estate as your first investment, here’s what you need to know.
Investing in real estate requires certain competencies and a penchant for strategic moves. Here are some of them.
- Emotional and psychological preparedness – Do not get into real estate investment if you’re not ready to approach it as level-headedly as a real business person would. Otherwise, you will easily get attached to your first purchase. That will make it difficult for you to let it go, should you need to. Your goal is to know when to sell or rent out.
Start small – No matter how big your funds are, you do not want to make a splash into the real estate investment pool. You want to approach it slowly, dipping your toes first to test the waters. For example, try out flipping a small property. Hire dependable partners to work with you. Once you make a successful sale, plan your next moves accordingly. You can go bigger the next time around.
Partner with a reliable insurance provider – Picture this scenario: You purchased a property for flipping. Because of the house’s wear and tear, a fire breaks out and almost razes it to the ground. That’s a huge financial loss on your end since it means rebuilding from the ground up instead of mere renovation, which is far less costly and where you derive profit from flipping. However, if you bought the right kind of insurance, you will be covered and will not incur those losses.
Maximize tax breaks – The government offers tax breaks to investors. Know what tax breaks you’re eligible for and subscribe to them religiously. There are tax breaks for property repairs, depreciation, and mortgage interest, to name a few.
Partner with the right real estate agent – You can’t just work with a run-of-the-mill agent. You need one with a proven history in real estate investment. Remember that most agents work in the industry to help out buyers in the market for a home. You, on the other hand, may be looking for money-making opportunities. It also won’t hurt if you have legal counsel by your side to guide you through pertinent housing laws.
- Get to know the real estate market – You can’t succeed in any industry you don’t understand. So do your research. Know the best seasons to sell and buy. Your goal is to acquire the needed expertise to read and predict market fluctuations.
Real Estate Investment Types
After equipping yourself with the prerequisites for real estate investment, it’s time to study what opportunities are at your disposal.
1. Real estate crowdfunding
If you have limited funds and time to fully commit to buying and reselling properties, you can still participate in real estate investment via crowdfunding. Here you choose a platform online and invest as little as $500. You then allow a third party to invest that money for you. These platforms have access to market analysis, so rest assured they know how to play the game. This can be a source of passive income for you. Save enough and in a couple of years, you might have enough to buy and flip a house.
2. Single- or multi-family homes
Single-family homes are more affordable. They are also easier to resell. Or you can rent them out or list them on platforms like Airbnb. Investing in a single-family home affords you considerable tax deductions alongside lower tax rates.
With a duplex, you have two units for the price of a single property. That means lower downpayment rates for you. If you, the investor, decides to occupy half of the duplex, you’ll be earning from the other unit.
4. Commercial properties
This type of property might not be beginner-friendly since the rules that govern commercial property rentals are different. Still, this is worth looking into given the earning opportunities this type of investment can provide.
Regardless of the type of investment you decide to pursue, there’s always a need for cautious optimism. That’s where you believe the possibility of financial gain while also acknowledging that risks are part and parcel of the whole deal.
So set your goals well. How much earnings are you aiming for within what timeframe? Know your limitations too. How much are you willing to lose?
Once those considerations are properly accounted for, you’re ready to make the leap. Cross your fingers and hope for the best. And most of all, play smart.
Noel Brago is a Project Development Associate at Studio N — the latest living space inside Filinvest City’s Northgate Cyberzone. Noel’s interest in houses and architecture led him to a career in real estate. Outside work, you can find him writing articles on business, real estate, and finance.