Investing in real estate might seem like a risky and a daunting move for someone who is not experienced in real estate, however, if you educate yourself on the ins and outs of real estate investing, you will gain substantial profit as well as many other benefits. The key to knowing when and where to invest in real estate is understanding what to look for and what to avoid. If you are thinking of investing, but are unsure of the decision then start your search in real estate beginning with the reasons why real estate investments are beneficial for you.
Reasons to Invest in Real Estate
1. Brings in cash flow
Real estate investments bring you a substantial amount of added income. This happens through renting out the property you buy for others. Commercial rentals are higher in rent than residential ones so keep that in mind. Increased cash flow gives you many benefits for you and your family.
- Equity for the future
You can use the cash flow from your real estate investments to create equity that you can use in the future to make other investments. By obtaining multiple investments you ensure that even if the market is bad, you will not be seriously affected.
- Passive income
You can use the rent you obtain from your properties as passive income to wholly cover your expenses. By covering expenses such as bills and mortgage through rental properties, you will have the total freedom to pursue your desired career instead of having to continuously work somewhere you do not enjoy having enough money for your expenses.
You can save the money you get out of investing in properties for your retirement years. That way you can ensure that you are going to maintain a good living standard even after you retire from the job you have. In fact, even after retiring, your properties will still bring you steady income so you do not have to worry about needing money. You will not have to pay for a retirement plan from your work paycheck.
- College savings
Investing in real property gives you a way of saving up money for your children’s university education. By depositing the profit you receive from your properties in a savings account with a good interest rate, you ensure that your children will get a good education if they wish to pursue it. So not only will invest in real estate be beneficial to you, it will also help your family exponentially.
2. Tax benefits
One of the most important benefits you get out of investing in real estate are in tax deductions. Due to the fact that tax bureaus consider all types of building to be in a constant state of depreciation over the years, you can use that to reduce the taxes you pay. You also benefit from the fact that taxes on real estate are lower than taxes paid in other investments because countries want to encourage investors to make more investments. “1031 Exchange Rules-Capital Gain Tax Federals”, an article online states that if you sell one of your property, then buy another property of a same or greater value within a certain time period, you will not have to pay the sales tax. This article explains the circumstances and rules that are required for your form to be accepted by the IRS.
3. Local community
Investing in real estate does not just benefit you and your family, it also benefits the local community. When you invest in residential properties, you are in turn increasing need housing for people in the area. Investing in commercial properties increases the number of job availability in the area, which will then attract people to live in that area. You will also be helping local amenities such as markets, schools as well as other local services.
4. Real estate worth
Investing in real estate puts you at a lower risk than investing in stocks or bonds. When you invest in shares, stocks, or bonds, your investment goes towards something that could not succeed and then you might not get any of your money back; however, when you invest in real estate it does not whether the market is bad or good. Your property will always have worth. It will never be worth zero, unlike stocks and shares. This makes investing in real estate a smarter choice regarding financial safety. The value of your property also appreciates over time, which means that it becomes of a higher value unlike other assets you might own.
5. Total control over estate
When you get real estate, you usually have total control over what you do with your property. Many people buy real estate to either rent it, thus getting back the money they paid and more through the rent they receive, or buy flip the properties they buy. Flipping a property means to buy a property at a very low price, then doing repairs and fixing it up, then selling it again with a much higher price. This allows the investor to not only take back the money spent on the repair of the property, but it also gives them large profits.
Rental properties as mentioned above could either be residential or commercial. Commercial properties are mainly used as offices or stores depending on the renter. Commercial properties bring you more rent overall as well as longer leases.
What to Look for When Investing
Now that you know how good real estate investment is and how much it will increase your income as well as save you money on taxes, you should know what to look for when you decide to invest in real estate.
1. Low interest rates
When investing in a property, you need to know the mortgage you are going to be paying for that real estate. Buying a property with a low mortgage interest rate is the key to getting back the money you spent through profits at a quicker pace. If you are going to get a loan to buy a property, then make sure that you have the financial flexibility required if the interest rates suddenly soared, or you can ensure that before you take the loan that the mortgage will stay at a flat rate.
2. Low prices
The real estate market has its ups and its downs. Keeping up with the state of the market helps you gain as much money through real estate investment as possible. Buying when the real estate market is down (low prices) then selling when it is up (high prices) is what many investors do to get huge sums of money easily. As a beginner in real estate investments, make sure that you study the market well before investing. Having a real estate agent with your best interests at heart is key to get a great price on the property you want to buy.
The geography of the property you plan on buying is a very important factor in deciding whether the property will give you profit or not. The geography of a property could be divided into a few key factors to consider.
One of the basic things that will weigh into the minds of a family looking to rent is whether there are schools in the area that are good; therefore it is an important factor to consider if you are planning to invest in residential rental properties. If you are planning on selling the property in the future this will also be used to your advantage so that you get a higher amount of money.
- Crime rates
No one wants to go near a place where the crime rate is high. Making sure that there is less to no crime in the area of the property you invest in will ensure that the rent you receive will be higher than if the crime rate in the area was high.
If there is a chance that the area you are planning to invest near has a large number of job opportunities then there will be a higher chance of people wanting to rent from you. This will also make you able to increase rents due to the increase in demand for rentals.
Amenities such as supermarkets, laundry places, dry cleaners as well as other services being anywhere in the vicinity of the property you own increases its value exponentially. This is because having these services and facilities nearby is a substantial advantage to any person who is looking to rent or buy a property from you.
4. State of the property
The state of the property basically means, whether the property will need a large amount of repairs or a simple cosmetic makeover. Look for properties that need minimal repairs, like a new door, repainting or landscaping. These kinds of fixes are easily done for very low prices, and will increase the value of your property instantly. They are also going to make you able to get higher rents.
5. Property taxes
Before buying any real estate property you should be aware of all the property taxes you have to pay for the property. Sometimes if there are taxes that are overdue on the property, then make sure that you are aware of whether you are going to be paying them in addition to the sale price, or will the previous owner pay them fully.
Another thing to consider when buying a property is to check whether the insurance covers every piece of the property or not. Things like sewer pipes, gas lines as well as the roof and structural foundations should be checked to make sure that you do not lose money over repairs.
7. Search before you commit
Sometimes contacting a real estate agent the moment you decide to invest in real estate properties makes you feel forced into buying a property, even if it does not feel like the right one for you. A solution to that is to start looking for properties on your own. This keeps you comfortable when you are looking at properties because there is no urgency. After you find something you would like to buy you can then contact a professional real estate agent to broker the deal.
8. Real estate agent
When trying to find a real estate agent to help with your real estate investments there are some features you need to be looking for. First and foremost is that the agent should be very honest with you about the state the property is in. This includes telling you about the risks that might arise if you invest in a property. Avoid agents who sugarcoat anything because they will not be truthful. Always seek referrals from those around you about real estate agents; but do not just leave it as a word of mouth referral. Look the real estate agent online for reviews to ensure that you are picking someone who will put you and the best for you as a priority.
What to Avoid
Just like there are features to look for in a property you’re going to invest in, there are things you should avoid doing and avoid investing any of your money in especially if you want to gain back the money you invest as fast as possible.
1. Expenses vs profit
If you find that the expenses you will accrue when buying real estate are going to be more than what you will be profiting in a period of ten years, then do not invest in that property. Calculate the taxes, mortgage, insurance and repairs that you will be spending on the house, as well as future maintenance and upkeep. If the figure is more than the income it will be bringing you then it will be a waste of your money.
Fixers are buildings or properties which need serious repair. This includes new roofs, rotting structure, etc. These kinds of properties need a huge sum of money to get flipped and will usually result in a loss rather than profit. Bear in mind that new roofs or walls do not increase the basic rent of a property because they are not additions, in fact they are the basic requirements.
Overpayment occurs when real estate beginners overbid on a property. This causes them to pay more than the property’s value by a large margin causing them to pay even more money on the mortgage as well as interest. This happens when a buyer gets bored looking for a property that fits their needs, so when they find one that does they overbid to ensure that they get it. Making them lose a lot of money in the process both initially and in the long run.
Smart real estate investing
If you plan on investing in real estate, you need to do your research well. Do not just depend on any real estate agent and more importantly, do not be afraid to ask as many questions as you want. Never overbid on a property and try to be patient when looking for one because sooner or later you will find one that is perfect for your needs whether for personal use or as a rental property.