Real estate investing is a great way to build wealth, but it depends on an investor’s long-term and short-term goals, risk tolerance, and the rest of their portfolio. If you want to develop an investment portfolio with the goal of achieving wealth, or you want to generate a steady flow of cash every month, you might enjoy real estate investing.
Depending on your financial goals, real estate investing can improve your portfolio or be an opportunity for you to pay off your mortgage. Additionally, the real estate market is stable, and properties appreciate in value over time. Here are tips for investing in real estate to generate wealth.
Understand the Types of Real Estate Investments
There are several types of real estate investments, including becoming a landlord, flipping houses, or buying property and letting someone else manage it. Some real estate investment options are considered lucrative, but they can generate cash flow quickly, while others take longer to create returns. Real estate investing can be worthwhile depending on your level of risk and available funds. Here are some of the most common real estate investing techniques:
Flipping a house means buying a property for less than you’d sell it for. But, of course, it also means making an investment in the house to fix it up in order to sell it for more. Many flippers look for poorly maintained houses they can fix up and sell quickly to bring home a profit within a few months since buyers prefer to buy houses that have been renovated. Flipping a house requires more than an investment in a house; you must also pay for the upgrade you make and service costs associated with working with contractors.
House hacking is an investment strategy that involves purchasing a property and renting it out while living in it. You can purchase a duplex or multi-unit property and live in one of the units to earn money and pay off the mortgage without worrying about how you’ll pay for rent.
Unfortunately, house hacking isn’t easy; there will be challenges associated with living on your property alongside your tenants. If your tenants can’t pay their rent on time or take care of the property, you’ll have to spend more money fixing it up, and you’ll lose money on missed rent payments.
With rentals, you can purchase a single-family or multi-family home, such as an apartment complex, and rent them out to tenants to earn money. You should be able to rent out a home for more than you paid for it when you do the math correctly. However, renting out a property requires a substantial investment, especially if you’re trying to purchase an apartment complex. If you have multiple tenants, you’ll also have to deal with expensive repairs to the property to ensure your tenants are happy with their homes.
Commercial real estate investing can also help you build wealth. However, you’ll need to rely on the business’s success in renting out your property to ensure you’ll get paid monthly.
Do Your Homework
Before you invest in anything, talk to a realtor, attend some webinars, and do your homework about the area. You can talk to residential realtors to determine the features in homes in the area that increase their value. A realtor can also let you know what average monthly rents are and find properties based on your unique circumstances.
Of course, you’ll need to consider where you live and your goals for investing. Cities have higher purchasing prices and rents than the suburbs, but they can have a higher return on your investment.
You should also consider the taxes in the area. Different states and cities have property tax rates that vary, and renting out a home in a state with high property taxes means you’ll make less money overall.
Consider All Costs
Before you buy a property, you’ll need to understand all the costs that go into it. You’ll need to pay for more than a mortgage. Associated costs might include maintenance and upgrades, including large-scale renovations to increase the home’s value.
You should always try to understand the area where you’re investing, but you shouldn’t limit yourself to the area where you live and/or work since that can limit your profitability potential. Instead, research other areas, including up-and-coming cities and neighborhoods, to find the best properties to invest in. Consider investments in other cities to diversify your investments and create better opportunities for yourself.
Don’t Overdo Renovations
Investment properties don’t need to be completely renovated. Instead, you can choose to fix up a few of the rooms that need it most to make it more appealing to buyers who will be willing to pay more for the home. Overdoing renovations can quickly eat into your budget, especially if you’re buying the highest quality items. In most cases, buyers won’t notice that you choose to go with one item over another as long as it looks nice, so there’s no reason to buy the most expensive products.
Of course, this also depends on how much you want to sell the house for. You’ll need to research to understand what similar homes are selling for before you can start planning renovations. If you over-renovate a home, you may not be able to sell it in an area with low income.
Investing in Real Estate to Generate Wealth
Investing in real estate can help you earn more money over time. Depending on your strategy, you can use your investment to pay off your mortgage or begin generating more revenue by renting out properties or flipping them. Before you start investing in real estate, ensure that you know your threshold for risk and do your research about the area where you plan to invest.
Remember, sometimes your investments won’t bring in as much money as you thought, especially if you want to flip houses. However, by understanding your budget, you can try to make wise investment choices to help you earn more.
About the Author Marné Amoguis
Marné Amoguis holds a B.A. in International Business from UC San Diego. She is a contributing writer at 365businesstips.com where she loves sharing her passion for digital marketing. Outside of writing, she loves traveling, playing music, and hiking.