Investing in real estate isn’t just for millionaires. Anyone can work hard and build wealth through real estate, but you have to use the right tools and have a solid plan in place.
Some look to real estate to help them build their savings or to help them retire early. Another reason real estate investing is a popular choice is because of the tax benefits. You don’t have to pay self-employment tax on profits you make from real estate, and it can even provide you with additional tax write-offs.
Why aren’t we all wealthy real estate gurus then? Unfortunately, many people don’t take the time to learn the facts and put in the work to create a solid real estate plan. Some people are lured in with deals that seem too good to be true and later find out they are. If you rush into an opportunity without studying it and having realistic expectations, then real estate can quickly leave you with an empty bank account and crushed dreams.
Here’s what you should know before taking the leap into real estate to make sure that your investments will grow with you.
Do your research
Real estate investing is a very broad enterprise and includes several different approaches. There are many ways that you can build wealth through investing in real estate.
You don’t have to become an expert in real estate to start investing, but you do need to do your research to make sure that you’re making a wise decision that’s best for you. A good investor takes the time to study the market, demographics, and laws before jumping into an opportunity.
Some investors are involved in the day-to-day needs of a rental home, some hire a management company to manage the investment property, while others simply provide a financial investment without any direct involvement with the property. The path you should take will depend on the time and risk you’re willing to take on.
You can invest in commercial real estate for businesses, in empty land, and you can also invest in residential properties. Some paths require a more hands-on approach and a larger up-front investment, while others can be started with very little.
Here’s how rental investments work: Let’s say you buy a house with a mortgage of $800 a month, and you rent it for $1,000 a month. The extra $200 you make is called cash flow. You have to prepare to pay for normal expenses and upkeep of your house, but after those are paid, any cash left over is profit.
You can save this extra money or use the extra cash flow to invest in another property that will give you even more cash flow. If done correctly, you’ll pay $0 of your own money for the mortgage of the house and will end up with extra money from each property at the end of the month.
Flipping houses, which has been made popular by many TV shows, is another route for real estate investing. Let’s say you buy a house for $150,000, put $20,000 of work into it, and then sell it for $200,000. After selling the house, you will have made $30,000 in profit.
This is called forced appreciation, which means that the amount of money the house will sell for will be significantly more than the amount that you put into it for the upgrades. Some investors don’t do any upgrades to their house and simply let time appreciate the house value.
Consider the risks
Just like with any investment, there are risks involved with investing in real estate. You need to be willing to handle months with no renters, a downturn in the housing market, unexpected repairs, and surprise expenses.
Investing in real estate is not a get-rich-quick scheme, and in fact, it takes time and hard work to see a return on your investment. But for those willing to do the research and stay with it for the long haul, real estate can be the door to wealth for many.
Get professional advice
Getting started in the world of real estate can be overwhelming even for the most real estate savvy, so getting a professional opinion can be a good way to know if you’re making the right decision.
Our team at BHGRE Steinborn & Associates has extensive experience in helping investors navigate the process and find opportunities that fit their desired risk level. If you’re interested in finding out more, contact us online today or give us a call at 1-800-234-3698.