Real estate is often considered a fairly stable investment option; for this reason, new investors usually put their money into property. Some of the main benefits of real estate assets include tax benefits, potential for passive income, diversification of portfolios, relative immunity against inflation, increased cash flows, equity growth, and the creation of a stable retirement fund. However, before investing in real estate, beginners should familiarize themselves with a few strategies and tips.
Real estate investing tips for beginners
Invest in REITs
For many new and risk-averse investors who wish to put their money into real estate without directly buying property, Real Estate Investment Trusts (REITs) are a useful alternative. These trusts use investors’ money to buy and operate income properties. Like standard stocks, REITs can be bought or sold on major exchanges. It is logical for investors to think of REITs as a kind of mutual fund scheme for real estate assets. This alternative offers stakeholders all the tax benefits of real estate investing.
REITs create a steady stream of secondary income for investors through regular dividends, which is why they are often classified as passive real estate investing options. Putting money in REITs allows beginners to invest in non-residential assets, such as office buildings and shopping malls. These assets are massive and worth millions, so individuals cannot feasibly invest money in them alone.
Consider online real estate platforms
Online trading has become a popular means of investing over the last decade. As with stocks and futures, real estate can be bought and sold through specific online platforms. These real estate investment apps and platforms are for those who wish to join other investors in pooling money on relatively large residential or commercial deals.
Real estate crowdfunding investment, which is the pooling of money in online real estate platforms, is a common real estate market trend today. In many instances, builders of major structures, such as shopping malls and buildings, require real estate crowdfunding to raise funds that will kickstart their projects. Crowdfunding offers a win-win situation for both investors and builders. For builders, online real estate platforms act as all-important sourcing avenues. For investors, putting money in such platforms allows them to diversify into real estate without putting up a large stake and exposing themselves to the risks.
Invest in long-term rental properties
Becoming a landlord is one of the most traditional ways to earn a stable income from real estate properties. For many beginners interested in real estate investment, renting out unoccupied properties is a financially sound option. By doing so, they can attract tenants who will pay rent for several years.
That said, being a landlord can be challenging, especially for those who are inexperienced. A truncated list of a landlord’s responsibilities includes vetting and securing tenants, collecting rent, looking into property repairs, and ensuring proper asset maintenance.
Flip properties
Flipping a house may be the most challenging of the others listed here, but it is a winning one. This real estate investment strategy involves finding an underpriced home that requires some renovation and upgrades, doing those upgrades inexpensively, and then reselling the property for a profit.
That said, flipping houses is an expensive side hustle, given the higher cost of building materials and mortgage interest rates. Plus, many house flippers often have to pay for the homes in cash. This exposes investors to an increased level of risk. Another risk associated with house flipping is that the longer an investor holds on to a property, the less money they are likely to make, as they may end up paying a mortgage without getting any income in exchange. Despite all that, the long-term benefits of house flipping tend to overshadow many of its risks.
Skills first-time real estate investors can employ
Using data analytics tools
Research is a major part of any major investment endeavor. Several data analytics tools exist online for prospective investors to find solutions. These tools help individuals accurately deduce property valuations, identify potentially winning money-pooling opportunities, and mitigate risk.
Familiarizing oneself with real estate terminology
Active and seasoned real estate investors often use specific terminology to discuss various aspects of the field. In addition to terms like appreciation, REITs, and property flipping, other important terms include cash flow, due diligence, HOA (Homeowners Association), turnkey property, inspection contingency, and rent installment default.
Best cities for real estate investment
Certain cities perform better than others in terms of returns for real estate investors. The factors that contribute to the high ranking of such cities are high rental demand, low tenant default rate, high rental income for renters, rapid job growth, which implies more prospective tenants, and burgeoning population growth, which translates into more accommodation seekers/rent payers, and competitive median home prices.
Based on these parameters, some of the best cities for beginners to invest money in real estate are
Nashville, Tennessee; Tampa, Florida; Austin, Texas; Charlotte, North Carolina; Birmingham, Alabama; Raleigh, North Carolina; Las Vegas, Nevada; Dallas, Texas; Phoenix, Arizona; and Columbus, Ohio.