Real Estate Investing is a popular type of investment because it offers unique tax benefits and the possibility of capital appreciation. But deciding to make it a part of your portfolio requires research and planning. You’ll also need to learn the fundamentals of real estate investing, including location and property management.
Many people who are new to investing may think that purchasing a home is a good way to get started. However, that is not a true form of real estate investing. Instead, a better option is to focus on rental properties or flipping homes. These investments are often less expensive than purchasing and owning a single home and can offer a higher return on investment.
When evaluating any real estate investment opportunity, it’s important to look at the product and identify anything that could decrease its value. This includes infrastructure issues, such as old and worn out plumbing and faulty heating and cooling systems. It’s also important to evaluate the current market and prevailing interest rates. Finally, a prospective investor should consider the zoning regulations for the area. If there are restrictions on what can be built in the vicinity, that will affect a home’s future value and profitability.
One of the biggest differences between real estate and other types of investments is that it’s not as passive as buying a mutual fund or stock in a publicly traded company. Real estate requires you to actively manage the property and find tenants, which can be time consuming. You’ll also be responsible for background checks and lease agreement contracts. It’s a good idea to put your investments in an LLC (limited liability corporation) to protect yourself from any claims made against you for negligence or other legal issues that might arise.
While you can find properties through a number of different channels, some of the most successful investors have their own real estate teams. They use local market knowledge, the MLS (multiple listing service) and online resources to find the best opportunities. And they aren’t afraid to say no if the deal doesn’t meet their standards.
Another popular strategy is to purchase fixer-upper properties and then rent them out. This approach, known as BRRRR investing, is a great way to build a rental portfolio without spending too much upfront. The key is to buy the property below its value, use short-term cash or financing to renovate it and then refinance with a long-term mortgage. Then, you can repeat the process over and over again. You can find more information on this technique on the Bigger Pockets blog.
Regardless of the strategy you choose, it’s important to understand that real estate is often illiquid in the short term. This can make it a riskier option for some investors. For that reason, it’s a good idea to talk to a financial advisor before making any major decisions.