How to Invest in Real Estate
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Tyler Green |Publish date: October 10th, 2020
Real Estate is one of most used Tools to obtain Financial Freedom
Investing in real estate is a great way to diversify your portfolio. Many people assume you need a ton of money and the patience to be a landlord.
There are many ways to invest in real estate and may reasons you should consider it. Anyone can invest in real estate with the right tools! Check out this guide on how to invest in real estate and learn how to start.
Here is our most recent purchase. A simple single Family Home. It has 4 beds, 2 baths, and has been completely remodeled!
We are hoping to rent it out for $1400 a month which will be double our monthly Mortgage!
We will then take that extra $700 per month and invest it until we have enough funds to buy another property!
How to invest in real estate
Investing in real estate is important. First, it diversifies your portfolio. For short and long-term success, you need diversification. Putting all your money in one investment, such as stocks, puts all your eggs in one basket.
What happens if the stock market crashes?
You lose everything. Now, if you diversified with some money in stocks, some in bonds, and some in real estate, your chance of a total loss decrease considerably.
Beyond diversification, there are other reasons to invest in real estate:
You don’t need a lot of money to start. If you invest passively, you can start with as little as a few hundred dollars. If you invest in physical real estate, you’ll need more money, but with financing (mortgages), you can get by with a fraction of the cost.
You increase your monthly cash flow. Many real estate investments bring in monthly cash flow. Unlike stocks or bonds which don’t bring in money until you cash them in, real estate increases your cash flow, enabling you to invest the money elsewhere and compound your earnings.
It can be fun. Investing in real estate can be exciting. Yes, there are risks, but every investment carries risk. The reward is often much higher than any other investment, as long as you can diversify.
Real Estate Investing Doesn't have to be complicated.
Here is a pic of our first-ever flip.
Buy an outdated home with good bones and then start to apply the lipsitck
These Three Properties were purchased with Vesta Capital.
If you want to learn how to invest in real estate without the responsibility of owning the physical assets, consider REITs (real estate investment trusts). REITs are like the real estate version of mutual funds. The fund manager invests in a multi-family unit that they rent out, and you invest either in the debt (money they borrow) or the equity.
Two popular platforms for REITs are CrowdStreet and Fundrise.
CrowdStreet – CrowdStreet offers real estate investments for accredited and non-accredited investors. The platform is free, but they charge fees for each investment, which they detail in the investment. CrowdStreet thoroughly vets is developers’ applications and accepts less than 5% to ensure stability. You can search the marketplace and invest in the real estate of your choosing. All investments are long-term.
Fundrise – Fundrise is the crowdfunding of real estate. You purchase a premade portfolio that is comprised of a variety of real estate investments. You only need $500 to start and the platform is easy to use. They charge an asset management fee of 0.85% and an advisory fee of 0.15% but are more accessible for non-accredited investors.
If you’d rather invest in physical real estate, single-family rentals are a great place to start. You’ll need enough capital to make a down payment and qualify for mortgage financing. Before you do, understand these important factors:
Know the area – Don’t invest in an area that isn’t common for renters. Do your research. What are the average rent rates? How long do properties sit vacant? What do renters want in a property?
Understand the risk – You own the home. If you don’t have renters, you’re still responsible for the mortgage, insurance, and taxes. You must keep up the home and are responsible for all maintenance and repairs, including emergency calls at 3 in the morning.
Have money for vacancies – There’s no guarantee you’ll always have renters. Do you have enough reserves to cover the home’s costs for 6 months or longer? What if we have another pandemic, could you survive if the home was vacant?
You are the landlord – Managing renters is a full-time job. If you don’t do your due diligence, you could end up with difficult renters. Have a process in place that vets renters as much as possible, but know you could end up with difficult renters and if they signed a long-term lease – you’re stuck.
Flipping houses is a great way to invest too, but do it with caution.
When you flip a house, you buy an undervalued house, fix it up and sell it for a profit. At least that’s the goal, but it doesn’t always happen. Understanding the risks is important:
Unexpected costs – Once you start renovations, you may come up against much bigger and more expensive problems than you budgeted for. This could ruin your entire budget and investment. Hire the right professionals so you know exactly what you’re getting into before buying the home to make sure you aren’t getting in over your head.
Holding costs – There’s no guarantee that you’ll sell the house fast. Once you fix it, you may be stuck with holding costs, such as the mortgage, taxes, insurance, and utilities. The longer you own the property, the less profit you make.
It may be hard to sell – Know the market. Don’t buy in an area where houses aren’t selling fast. Do buyers look for new homes or renovated homes? What styles do they buy? What features do they need? Know these things before investing in a fix and flip.
Buying a fix and flip can be great when done right. If you have enough equity in the home and are stuck with it (it won’t sell), you may even be able to do a cash-out refinance and get some of the equity so you can invest elsewhere while you’re stuck with the home.
If you aren’t careful, a fix and flip could destroy a moderate family's income and net worth. Do your homework and know what you’re getting into though, and it can be successful especially if you know the home’s potential, the area’s history, and have the right team to help you market and sell the home.
If you’d rather buy and hold a home, consider a vacation home. Listing it on Airbnb or VRBO provides access to a much larger market, giving you greater earnings potential. Like any real estate investment, there are pros and cons.
You may make profits. The average vacation rental owner makes $900 - $1,000 a month. If you rent in a luxury or popular area, you could make a lot more.
You get a lot of tax deductions. Investing in a vacation property means you have many business expenses, which you can write off. You couldn’t write these same expenses off on your primary residence.
You can charge more. Vacation rentals usually rent for much higher rental amounts than you can charge long-term renters.
You don’t have to depend on one tenant. Your income is more diversified with a vacation rental because you aren’t depending on one tenant for a year or more.
Lack of responsibility. Vacation renters don’t take the same level of pride in vacation rentals as they do long-term rentals. You may have more damages and/or repairs to deal with.
Amenities are more expensive. Vacation renters want luxury, not standard accommodations. You’ll have to invest more in the home and what you provide if you want to earn high rents.
Income is sporadic. Without a long-term lease, you’re at the mercy of the industry. During the pandemic, for example, vacation rental owners suffered because no one was traveling.
Vacation rentals are high risk, but they are also high reward. If you can diversify your investments with a vacation rental, among others, you increase your chances of higher profits when things are good, but should offset the investment for when things aren’t so good.
Investing in real estate can be lucrative and risky at the same time. Each family must choose what’s right for them. If you can’t take a lot of risk, consider multi-family investing so you don’t have to deal with the risks of physically owning property.
If you want the higher risk and/or higher reward, consider physical real estate. You have many options. If you love fixing things up – fix and flip may be a great option. You’ll already have throughout knowledge of the industry and know what’s a good buy and what isn’t. If you prefer to manage a rental – decide if you need long-term stability (renting single-family properties) or high rewards (vacation rentals).
Do you want passive investments or actively managed investments? Ask yourself these questions when learning how to invest in real estate and to decide if it’s right for you.
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