For beginners investing in residential properties can be rewarding as this branch has a higher success rate. Success in residential real estate rewards you with high profits and sometimes even a new career. Once you get comfortable with investing in residential properties, you can explore other areas of the sector.
Millennia’s have been slow to invest in real estate.
However, most people think that real estate investment is not accessible to them. This often happens due to a lack of knowledge in this field. A good real estate consultant or attending a few seminars can get you started.
To learn more about investing in real estate, or on rental properties 101, we have collated a list of few pointers that would help you in understanding the diverse facets of real estate. These tips will also be fruitful for you to gauge a beginner’s insight on proceeding towards the endless possibilities that real estate investments have to offer.
To begin with, Residential real estate investment can be classified into three major types, and you can start with the one that fits best for you.
Let’s discuss these types in detail.
Fix and Flip
Properties with cosmetic or structural problems come under this category for investing in real estate.
An investor fixes the faults or shortcomings in the property and then sells it for a profit. People with refined knowledge and skills of home repair and maintenance usually opt for this option.
Lack of this knowledge can often result in a loss or minimal gain in the deal since a contractor would take a major chunk of the profit. For investing in residential properties like these, it is good to hire a professional consultancy that would help you in making the right choice.
A preferred and recommended option for most experts is an investment in residential rental properties. This is a form of long-term investment, it generates a regular cash flow.
It can also be a self-paying investment, as the rent itself can pay for the cost of the property over some time.
This option of rental properties 101 is preferred by a regular earner as well as people who inherit a home. At times, it can become costly and time-consuming. Since finding a tenant and making home repairs periodically is not easy.
Multi-Family Rental Proper
A multi-family rental property is similar to that of the previous type. The only difference is more than one family or joint family lives in such properties.
The advantage of this investment in real estate is that even if one tenant moves out, the cash flow continues as long as other units are occupied. However such properties are costly, and one must have enough funds to get started by paying the down payment.
Here are a few tips on rental properties 101 and investment in real estate for a beginner, planning to venture into the diverse field of property.
If you have a regular positive cash flow from a business or a job, you can diversify it into part-time real estate investing. For a beginner, it is best not to invest all your money, instead invest small sums in the beginning and focus on learning and gaining experience.
It rarely happens that one would say that my first deal was the best.
You have to develop various skills like reading contracts, developing a network of specialists like lawyers, financial advisors, etc. A good eye for such people and profit-making deals comes only through experience. To begin with, find some cheap properties, like renovations and flips, single-family homes.
The key here in investing in real estate is to Commit as little as possible.
Many people reject the idea of investing in real estate due to the presumption that money is all we need to be successful in real estate.
They fail to understand that, it’s the deal that matters, not the amount of money you have. People usually buy small properties and invest a lot of capital in refurbishing them, whereas the payoff for that property is less.
So one must buy a larger property, hire a manager who would optimally handle the rest of the work. This will give you a bigger payoff, plus hiring a manager will ensure that this doesn’t become your full-time job. To make such investments you might need to wait till you save the appropriate amount of money or use other people’s money.
Understand The Economics
The real-estate deals that seem easy and attractive, such as the one which has tenants and management in place, publicly-traded real estate investment trusts usually yield the lowest returns. The most profitable deals are hard to find and you need to develop an eye for them over time.
With such skill, you can turn a little amount of money into a whole lot of money. If you are seeking a tax advantage over your earnings from investing in residential rental properties, it can be achieved through short term renting companies like Airbnb, Oyo, Home Away, etc.
The majority of real estate investors are shifting towards this mode of renting properties. Flipping and selling are thus overrated. A sure way to succeed in real estate is by holding your asset.
Owning a rental is like having a small business, rent and hold for a win. Real estate is full of pitfalls, and to take the right steps and achieve huge profits, the right real estate mentor becomes a necessity.
Learn, Then Earn
Before investing money in the real estate market, get proper knowledge and educate yourself. Expensive education is not necessary. In this information era knowledge about anything can be obtained with ease.
Applying the knowledge you have gained and growing inexperience is the only path to success in real estate investment.
Keep some funds for any unexpected situation, as a backup. Start with a single project and with experience increase it to multiple.
The best part of investing in residential rental properties is that the rent acts as a continuous cash flow paying for the cost of the property. At the same time, it also rewards us with an appreciation for our property.
The Bottom Line
The situation is win-win, though a proper study must be done before buying for this particular purpose.
Before investing in real estate be sure of your goal and the returns you desire. Is it continuous cash flow you want? Do you want to make a huge profit in relatively less time and make it your primary business?
Whatever you choose, be sure to calculate your total investment and the returns you will be getting from it and make sure it aligns with your goals.
Investing in real estate, you lose money only when you are forced to sell the property. So make sure you have a backup. Knowledge is the most important and profitable asset, which will help you in making smart investments. And a smart investment strategy can grow a great deal of capital, no matter the size of your initial investment.