How to Start Investing in Real Estate | Woodbridge Wealth
12 05 2016
Investing in real estate can be one of the most rewarding financial decisions you make.
Not only are there the financial incentives of property appreciation, equity, and cash flow, there's also the invaluable experience you gain from working through the different stages of real estate investing.
Avoid Common Real Estate Investing MistakesIn order to avoid learning your lessons the hard way, we've collected the top three tips for those who are interested in learning how to start investing in real estate.
That's because every real estate opportunity - from investment products to individual assets - is unique.
Talk to veteran investors; they'll attest that every city ... every neighborhood ... every property presents its own unique challenges. From federal laws to local ordinances, unexpected trends to persistent issues, there's a lot to learn from any investment opportunity. And the diversity of available inventory means there's truly no one-size-fits-all formula.
But that doesn't mean real estate investing for beginners has to be 100 percent trial by fire.
Here are The Top 3 tried-and-true principles for smart investing in real estate:
1. Align your investment with your goals (not the other way around).A common caveat for any investment is not getting emotionally attached to what you've bought. This is especially true for real estate investing, which tends to involve large, complex, expensive assets. Whether it's preserving a family home, rehabilitating a historic property, or successfully managing a multi-unit complex, challenges will inevitably arise that test your commitment to your purchase.
Ask yourself, how much involvement do you realistically want when investing in real estate?
Some investors want to make a direct impact on local housing. Still others want to take a hands-on approach. This might be to spur residential investment, to expand influence in a particular area, or to be part of a growing movement that's transforming the character of the city. While all these are valid reasons to be excited, they can also add major demands to the responsibilities of the investor.
For example, if a property is zoned as historic, it's stable in the sense that the city has made a commitment to preserving its legacy. But that also means that renovations and general maintenance are subject to regulations and oversight. If you invest in a multi-unit property, there is potential for higher cash flow, but keeping units filled can be a perpetual struggle in some markets. Chronic vacancy can leave you stuck with a bigger share of the mortgage than you'd planned, and then you're on the wrong side of the cash flow.
That's why many who are new to real estate investing start with safer, manageable opportunities such as starter homes, shared-mortgage investment properties and REITs.
2. Real estate trends are seldom in line with your real needs; they're about drumming up demand and making you "want" something they already have.Home improvement TV shows have never been more popular - and more ubiquitous. But just because someone's flipping a house on every channel doesn't mean housing renovation is necessarily your calling.
If it's your dream home, that's one thing. But many see property renovation as a way to make a quick fortune.
Let's pause here and say: if you're turning to real estate investing with dreams of record ROI, let the buyer beware. While it's true that the housing market is generally one of the safest investments, there are always risks to ownership, including market volatility, tenancy and vacancy issues, and unforeseen maintenance needs.
On top of that, there are the costs associated with buying property, including taxes, closing costs, inspections, contracting, and often legal fees (for ensuring you're doing everything on the up and up).
Profit is a natural goal of any business transaction. But when it comes to investing in real estate, there has to be an even greater motivation at play, whether the desire to build, to own, or to transform.
3. There's a real estate investment for every price point and circumstance.When you think about real estate investing for beginners, what comes to mind? Probably first-time home buyers (most of us don't start out with skyscrapers).
Single-family home mortgages remain a benchmark for our nation's economic health. But there are other ways to start investing in real estate, whether for Millennials who may not have the capital for a down payment, or for retirees looking to diversify their portfolio.
Some companies offer real-estate-backed securities, which provide investors with high liquidity on a safe, secure investment. REITs, which are structured like mutual funds, finance income-producing property transactions, and provide a variety of income streams for investors.
Create closingTake careful stock of how involved you'd like to be, how much you plan to invest both in capital AND time, and determine your level of risk. Once you know those three things, the right real estate investment option should be clear. For those who want a bit more risk, and don't mind taking a hands on approach, an investment property might be the right solution. And for those who value financial security and stability more and want to leave the management of properties to professionals, a REIT might be the right way to go.
There's no one size fits all solution, but by taking a strategic approach to your investment, and aligning your goals, you're sure to get the most out of your beginning real estate investment.
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