Basic Tips for Beginners Investing in Real EstateJul 03, 2020
Investing in real estate can be a challenging process for beginners. However, there are basic tips that make it easier. Real estate is a major investment, so ensure you approach it with care and consideration. Following these tips will help you get started.
Which Investment Method is Right for You?
Most real estate investors choose one of these methods:
- Buying shares of a Real Estate Investment Trust (REIT)
- Purchasing actual real estate to rent out or flip
The differences between the two are huge, so this is a big decision.
Investing in a Real Estate Investment Trust
If you select the REIT method, then you’ll be purchasing shares of a portfolio of real estate. REITs have professional managers that select the real estate in the trust. This method is similar to purchasing a mutual fund, where you just invest your money and don’t have anything to do with managing the real estate yourself.
A real estate investment trust can be a good investment. It’s easier to enter the real estate market through REITs. You can buy shares at a level that’s comfortable for you and hold them or sell them whenever you’re ready.
Many REITs also pay dividends monthly or quarterly and offer you the choice to automatically reinvest your dividends into the trust, automatically growing your number of shares until you’re ready to start receiving the dividends to supplement your income.
It’s important to research multiple trusts and compare them before you invest. Study the terms of each trust and how money is added. Has this been a profitable trust? Even though past performance doesn’t guarantee that future profits will be similar, you can see how their investment philosophies and methods have worked out in various real estate environments.
Investing in Actual Real Estate
Buying actual real estate is a large investment. Do you want to buy properties, fix them up, and flip them? Or would you like to hold on to the properties and rent them out?
Have you considered all of the obligations that come with owning extra property? Can you afford additional mortgages and property taxes? What about repairs and maintenance costs of the property?
Investing in homes, businesses, or apartments is a big decision. Plus, these investments are not liquid, like REITs. If you want to get out of the investment, it could take some time to sell the property.
Consider these aspects of buying, managing, and selling properties:
- Decide if you want to manage your properties. Being a property manager is a challenge, and there are other options. You can hire management companies or individuals to handle the process for you. They’ll be responsible for dealing with the property and potential tenants.
- If you decide to handle the property on your own, be prepared for a time investment, as well as a money investment.
- Consider potential tenants. Properties that are sold empty will have to be filled.
- What type of tenant is the property most likely to attract? Can you recoup the cost of the mortgage payment each month?
- Make a list of tenant aspects that you favor, such as not having pets or not being a smoker. These requirements will help protect your property and make it easier to choose tenants.
- Think about the market long-term and the area. Does your property investment show potential growth?
- The area around your property also matters. Are the schools highly ranked? Is the city planning new developments? All of these factors affect the long-term value of your investment.
- Make spreadsheets for each property you’re considering. Research is the key to making an informed real estate choice.
- A spreadsheet is an easy way to organize your real estate finds. You can create fields for addresses, phone numbers, square feet, yards, rooms, prices and other aspects. You can also add your own feelings to the spreadsheet such as likely to buy or may or may not buy.
- Lining up the properties in a spreadsheet lets you immediately see the winners.
Investing in real estate is a big step. Consider talking to a professional advisor about your options to ensure you’re aware of all the possibilities and downsides. By thinking ahead and carefully planning your investment, you can make more money and avoid headaches.
Combined authors with Michelle Russell
© The Prosperity Process, LLC
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