Overview of Real Estate Investing Basics for Beginners

Overview of real estate investing basics for beginners

Although the real estate market has plenty of opportunities for making big gains, buying and owning real estate is a lot more complicated than investing in stocks and bonds. Before everything else, ask yourself these questions:

What is the purpose of this purchase? For my own use? For income generation? – This is an important question since the purpose usually determines the size, location of the real estate property that you will purchase.

Can I afford it? – Another critical question. Once you have determined the purpose of your spending, then you can determine whether your own cash flow is enough or lacking. If lacking, then you can plot your savings/other investments or pool funds with others (friends, family or a real estate investment company) so you can afford it.

Since real estate investment is about capital growth, it is imperative that you choose the right property at the right location, which increases the chance for better value. It is necessary to conduct research on not just the property but also the market which includes a major city’s commuter belt or close to schools, and commercial areas. Factor in tourism as well.

Recommended Read: The Dangers of In-house Financing

Buying and owning your home

While you might think that owning your own home is mostly about providing shelter, think again. If properly managed, your own home can be the single best way to invest in real estate in a first investment. This is also assuming that you are able to pay off the monthly mortgage.

If your home is in a good location, you can rent out a small space to earn income.
If you maintain it properly and limit over-improvements, it will be more marketable plus add the market price appreciation.

Buying property for income generation

The purpose of the property you purchase is to generate income through rent, which means you don’t really live in it. This can be through compounds, apartments or condominium units. This is one of the most time-honored ways to build wealth.

At a minimum, the rent that you receive on an investment property should cover the expenses of owning it. If it does nothing more, your tenant will effectively be paying for your investment. However, there are some things that you need to be aware of with rental properties:

It’s not passive income. When you are the landlord/lady, you take care of overall maintenance, repairs, collections of payments, marketing; unless what you bought is a Condo-Hotel unit or you are an investor in a group of investors.
There are vacancy factors – times in between tenants when there is no rent income.

Recommended Read: Lazy Real Estate Investment - Condotels

Ancillary Real Estate Investment Income

For some real estate investments, this can be a huge source of profit. This income includes things like vending machines and the like equipment in office buildings or laundry facilities in low-rent apartments. In effect, they serve as mini-businesses within a bigger real estate investment, letting you make money from a semi-captive collection of customers.

Choose one or two – real estate is an excellent diversification in a long-term investment portfolio or retirement plan. There so many ways to do it, it’s just a matter of choosing the one you feel most comfortable with.

Real Estate Trading or Flipping

Real estate traders buy properties with the intention of holding them for a short period of time (often no more than three or four months) and selling them for a profit. 

This technique is also called flipping properties and is based on buying properties that are either significantly undervalued or in a very hot market. This can be done in two ways:
Buy foreclosed properties, renovate it and then selling it.
Secure undervalued (pre-selling) properties. Wait for market price appreciation before selling.

Flipping houses is the most hands-on, and potentially risky ways to invest in real estate. The two biggest issues are paying too much for the property upfront, or discovering that what you thought to be a minor repair is something much bigger.

Always check the true physical condition of the property, and have an accurate estimate of renovation costs.

Buying and earning large scale

This is a variation of the rental property where you invest in office, retail or warehouse/storage property. It follows the same general pattern in property rentals. But investing in commercial property is generally more complicated and expensive than investing in real estate rentals on the residential side of things.

On the plus side, commercial real estate usually involves long-term leases. Since the property is being rented to a business, they’ll want a multiyear lease (10 or more years). This will ensure the continuity of their business.

Appreciation on the property can also be more generous than it is for residential. And the tenant often pays for the upkeep of the building, in addition to the monthly rent. Leases can also be structured to give the landlord a percentage of the profits of the business as well.

On the downside, commercial property is often subject to the business cycle. During recessions, business revenues decline, and your tenant may have difficulty paying the rent or worse, go out of business. Since commercial tenants come in all shapes and sizes, it may take months or years to find a new tenant for your property.
Become a Real Estate Entrepreneur

If you can’t afford to invest yet, then earn more. Why not be part of the industry by selling real estate properties and also learning a lot on the side? You earn by commissions, but if you save that up, you will eventually transition into real estate investing yourself!

As with any investment, there is much potential with real estate, but this does not mean it is an assured gain. As with any investment, make careful choices and weigh out the costs and benefits of your actions before diving in.

If you like this post, please do share it on social media like Facebook, Twitter or any other site that you like (of course with a credit link back to this blog post).

Also, don’t forget to follow me on FacebookSpotify or Anchor.fm (for the Podcast), and Instagram for more updates and random stuff about me and this blog.
Overview of Real Estate Investing Basics for Beginners Overview of Real Estate Investing Basics for Beginners Reviewed by Vernon Joseph Go on Tuesday, October 09, 2018 Rating: 5

No comments