We have seen investing change over the course of the past decades. There are many ways to invest and create wealth outside of the traditional stock portfolio. While investing in the stock market is still very common, there are other ways to invest that may provide even higher yields if you're willing to put in the time. Real Estate investments have been an excellent way for many people to see their money grow and prosper. It can be a great way to build wealth and prepare you for retirement. Investing in real estate takes research, planning, and dedication. Below are six tips to help guide you in your real estate investment opportunities.
1. Understand The Costs
Real estate investment isn't inexpensive. Properties can cost quite a bit to purchase outright, but it can be worth it if you have the monetary funds to get started or are willing to take out a loan. It's not as simple as purchasing an investment property and watching your investment grow. There are costs associated that you need to keep in mind: maintenance, yearly upkeep, taxes, and utilities can add up quickly.
If you need to take out a loan, you'll need to consider real estate investment trusts (REITs). REITs are financial companies that finance or own real estate properties based on specific requirements. REITs pay out most of their taxable income, but the investors pay the income taxes. It's essential to understand all the facets of real estate investing and the costs associated with it.
2. Selecting The Property
Deciding on what type of property can be very challenging. Are you interested in rental properties, either commercial or residential? Are you looking for long-term rental or short-term rental? Are you looking to rent your property on Airbnb or vacation rental?
If becoming a landlord on a residential property sounds daunting, you might consider purchasing a commercial property which tend to be longer leases. Another option is to invest in a fixer-upper which you can flip in a matter of weeks or months in certain circumstances. It's essential to understand your plans before purchasing and what time commitment you can make to your investment property.
3. Know The Area
Location is critical when looking at investment properties. Don't make the mistake of buying in an area just because the price is reasonable. Do your research. Make sure to check the market value and what the neighborhood has to offer. Narrowing down your investment focus will help you understand where to look.
It's also essential to research your competition and determine if your chosen property is in a good location. If you're looking for a vacation rental, what is the proximity to entertainment or recreation? If you're looking for a house to flip, make sure to research crime statistics and schools districts. Knowledge is power when determining what will yield the highest return on your investment.
4. Protect Yourself
It's important to understand the legal implications of investment property ownership. If owning multiple properties is part of your plan, you will want to consider using an LLC to purchase them. An LLC (Limited Liability Company) will help you manage your risk. If anything should happen over the properties, you will not be held personally responsible. An LLC could help protect your retirement fund if something were to occur at the property.
5. Buy property with growth in mind.
When you invest in real estate, you may want to want to sell it eventually. Increasing value and making a profit is why you started looking in the first place. Selling the property at a profit is the ultimate goal. Property value can be increased by making upgrades or additions. Making changes to an existing property can pay out HUGE dividends.
6. Keep essential numbers on hand.
Real estate investment involves a lot of people. While you may have the time and energy, you may be limited in what you can do to the property yourself. Make sure you have a list of trusted advisors to whom you can reach out with questions about your investment property. Property managers, an attorney, a CPA, real estate agents, and money lenders are all critical resources. You will also need to have a list of key people who can ensure your investment property's upkeep, including an inspector, plumbers/electricians, a handyman, pest control experts, and contractors. Make sure to perform your due diligence before you decide to make the move into investment property ownership. To ensure your success as an investment property owner make sure you have the resources and time to dedicate to your investment.
Are you interested in learning how HomeTown Lenders can help you invest in real estate? Call us today at 406.220.0077 or apply online line. We're available 24/7/365 to answer any questions and get you started.