Is Real Estate Investing Right for You?
11 08 2016
1. Know your options.There are many real estate opportunities in the marketplace.
Basic Rental Properties / Income Properties:Many current homeowners are familiar with residential properties and already have cursory experience in obtaining and paying down mortgages, basic upkeep, and taxes. Ideally, by setting rental price at or above a rate to offset these costs, a rental property can eventually pay for itself - assuming that you're able to find tenants at the right price point. A rental property can be an extremely hands-on investment. If that's not for you, there are rental management companies that can take care of your property for a relatively small fee.Some Potential Risks: Bad tenants who damage the property or don't pay on time. Not being able to find a tenant means being responsible for the mortgage and upkeep on your own dime.
Real Estate Investment Trust (REIT):Think of this as a mutual fund for real estate. REITs provide investors with regular income streams, diversification and long-term capital appreciation. They give you the option to invest in larger-scale property developments just like you would invest in any other larger-scale industry: by purchasing stock.Some Potential Risks: This relies on the strength of the real estate market
House Flipping:These one-off projects are gaining in popularity thanks to shows on HGTV, but that doesn't mean they're safe investments - in fact, they may be one of the riskiest investments out there. An investor purchases a home that needs aesthetic or structural work, then completes that work, and sells the property for a markup. However, if your property doesn't sell, you can wind up footing the bill for repairs and the mortgage every month it sits on the market.Some Potential Risks: Unknown and costly repairs to foundations or structural damage. Not being able to sell the house for a profit after pledging money and time to the project. You could, theoretically, be left owning a home you never intended to keep.
2. Know your tolerance for risk.Brick-and-mortar real estate investments take time, energy, and capital to manage correctly. It's a significant undertaking with a significant amount of risk associated.
There's no reason to jump immediately to a 25-unit apartment building. Why not start with one condo or house to see whether being a landlord suits you. If it does, you can use the returns from your investment to start another venture. Build in STEPS - not STORIES.
3. Know the investment landscape.There are thousands of factors that contribute to a strong or weak housing market. Keep up-to-date on trends that can affect your property's value or your ability to find tenants in rental properties. Here's a few to keep in mind:
The election:With one of the wildest elections in modern times comes uncertainty. Real-estate brokers are encountering consumer hesitation to list or buy homes simply because they don't know what type of economy is around the corner.
Follow the polls. Many brokers believe a Clinton presidency would help calm the stormy seas of uncertainty for many - while a Trump presidency could exacerbate uneasy feelings and contribute to a stagnant market.
Interest Rates:Hikes in interest rates can turn some investors away from beginning a new mortgage. For rental/income properties, these interest raises cut directly into profitability. Most are negligible, but taken at larger scales, they do influence your ability to make a profit.
Rental Trends:Buying remains more attractive than renting in America. In fact, Zillow data suggests that the breakeven point is only 1.8 years - where buying becomes more financially advantageous. So there are financial as well as aspirational incentives working against your potential rental property.
But the flipside is the economy. While it may be more attractive to buy than rent, many still cannot afford to buy a home. In fact, housing market growth may have actually outpaced earning capacity for homeownership. Lower-end home prices have risen 8% (compared to median home price increases of only 5.4%). That means that most who WOULD rent will CONTINUE to rent. Expect the rental market to stay strong - good news for your income property investment.
Selling Markets:Even if you decide on a rental property, you may have trouble finding one to purchase. New construction has been slow in 2016 - falling about 350,000 groundbreakings short of getting supply back in line with demand. On top of this, many homeowners simply aren't selling - especially in some of the top markets.
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